Flutter Entertainment PLC

Paddy Power bemoans “customer friendly” horse racing and football results in first quarter

Total revenue grew 17% year-on-year to £478mln, although this would have been even higher had a string of horse racing and football results gone a different way

horse racing
In bookmaker parlance, revenue is money wagered less money returned

Margins at Paddy Power Betfair plc (LON:PPB) came under pressure in the first quarter amid a string of “customer friendly” sports results.

The FTSE 100 bookmaker bemoaned “unfavourable” racing results in February, which was followed by a difficult March for its football betting business.

READ: Paddy Power flutters with name change

Gambling companies prefer it when the favourite loses a match or race, as, by definition, that is one most punters have backed.

As a result, online net revenue margins fell by 1 percentage point (ppt) to 6.6% in the three months ended 31 March compared with the same period last year.

In the retail side of its business – its high street stores – the sportsbook margin declined by 1.1ppts to 11.4%.

‘Excellent’ growth in US and Oz

Despite the margin squeeze, total revenue – money wagered less money returned – increased by 17% to £478mln in the first quarter (Q1 18: £408mln), driven by “excellent growth” in Australia and the US.

Revenue in Oz jumped 20% year-on-year to £96mln as Paddy Power saw a 17% increase in stakes. Margins in the Australian business were 0.5ppts below bosses’ expectations at 9.2%, although this was still slightly up year-on-year (Q1 18: 9.0%).

Over in the US, revenue surged 47%, with 12% growth in the non-sportsbook businesses supplemented by £18.4mln (US$24mln) of sports betting net revenue.

The American market has been opened up to gambling firms after a court ruling in May 2018 gave states the right to legalise sports betting.

UK hit by unfavourable results

In its home UK market, Paddy Power has been managing declining revenue in its shops as high street footfall tumbles.

Retail revenue fell another 2% to £77mln in the quarter, with 2% machine gaming growth offset by a 5% decrease in sports revenues as customers backed more winners.

Paddy Power has been growing its online business to make up for the retail shortfall, and revenue in this division rose 4% to £228mln in the opening three months of the year.

Excluding the impact of Adjarabet though, the Georgian gambling group Paddy Power took a controlling stake in in February, online revenue dropped 1% as a result of the “adverse” results.

Full-year on track

“Q1 was a good quarter for the Group with revenues up 17%, notwithstanding customer friendly sports results in the UK,” said chief executive Peter Jackson.

“Trading in April has been in line with our expectations. In the US, FanDuel remains well positioned to generate good returns on ongoing sports betting investment and for rest of the Group we remain on track to meet our full year profit expectations despite the adverse sports results in Q1.”

Analysts at City broker Shore Cap expect performance this year to be “severely impacted” by regulatory and tax pressures.

They are forecasting pre-US underlying earnings (EBITDA) of £430mln this year, down from £467mln in 2018.

Shares fell 4.4% to 6,468p in early deals on Thursday.

--Updates for share price and analyst comment--

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Price: £67.20

Market: LSE
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