City bets big on Paddy Power Betfair

After a dismal year for shares in Paddy Power Betfair, there have been signs in recent weeks that the PR-loving bookmaker is returning to form.

Maybe it has something to do with the infamous Paddy Power "Lucky Pants", which were worn by boxer Floyd Mayweather at the weigh-in for his high-profile bout against mixed martial arts fighter Conor McGregor in late August.

Since then there's been a marked uplift in the company's share price, with bets on the Las Vegas contest helping to drive revenues up by 9% to £440 million in the company's third quarter update published today.

Highly-regarded chief executive Breon Corcoran, who leaves the company in January, said it had been an encouraging quarter, particularly as there was no major football tournament in the period.

Underlying earnings of £121 million were higher than City forecasts, prompting the company to upgrade its estimate for the full year to between £450 million and £465 million.

Paddy Power Betfair shares rose 5% or 355p to 8,060p Wednesday, continuing the trend of recent weeks – the shares are up over 20% since late August - and offsetting sharp declines seen in the summer, as the group struggled to win over investors on the merits of the newly-merged Irish bookie and online gambling site Betfair.

Leadership uncertainty, with Worldpay UK boss Peter Jackson now set to take over, didn't help either. And then there's the ongoing worry about the government's review of stakes on fixed-odds betting terminals.

As Corcoran told investors today, the industry "remains highly competitive and is exposed to regulatory risks".

For UBS analyst Chris Stevens, there's the added issue of a disappointing online performance in the Q3 update. He still has a 'sell' recommendation and price target of 6,900p on the FTSE 250 stock.

Stevens said: "While Q3 revenue and EBITDA is a beat vs our expectations, we see the decline in online sports and flat gaming as somewhat disappointing."

The company said online revenues were down 3% to £216 million, driven by weaker sportsbook margins after failing to get the same boost from sports results as it did last year. Sportsbook stakes were still 10% higher.

However, the integration of technology platforms should be completed next year, meaning customers will benefit from an increased pace of new products across the Betfair and Paddy Power brands.

And there are other reasons to be positive about the company, which is widely tipped to be a player in any further industry consolidation once regulatory issues are put to bed.

Its international businesses performed particularly well in Q3, with revenues in Australia up 29% and the figure in the United States 18% stronger.

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