Paddy Power Betfair profits double after strong Cheltenham Festival
Paddy Power Betfair's operating profits more than doubled in the first quarter of 2017, with a successful Cheltenham Festival cited as a major factor.
Bookmakers took a hammering at both the 2015 and 2016 festivals but in a trading update issued on Wednesday, Paddy Power Betfair said that 19 of the 28 Cheltenham races went their way this time, compared to only 11 the year before.
The group, which in March detailed a revenue increase of 18 per cent to £1.55 billion in its first full-year results as a merged company, saw its underlying operating profit hit £91 million in the three months to March 31, an increase of 114 per cent on the same period in 2016.
Excluding customer balances, Paddy Power Betfair had £133m of net cash at the end of the quarter, with group revenue up 15 per cent on a constant currency basis to £416m.
The group's underlying Ebitda (earnings before interest, tax, depreciation and amortisation) rose by 83 per cent on a constant currency basis to £111m.
Paddy Power Betfair also revealed it has benefited from the fall of the pound against the euro in the wake of the UK's vote to leave the European Union, with the company saying it witnessed "a £23m benefit from the translation of non-UK revenues due to the weakness of sterling".
Chief executive Breon Corcoran said: "Reversing the trend of the past two years, results at Cheltenham 2017 favoured bookmakers and this contributed to good revenue growth.
"Combined with the annualisation of merger-related cost savings and continued focus on operating efficiency, this resulted in a doubling of operating profits in the first quarter."
The company's revenue growth was largely attributed to a 33 per cent increase in its sportsbook revenue, which itself was driven by improved sporting results compared to 2016 and a growth in online stakes. Revenue on the exchange, meanwhile, was up seven per cent while retail witnessed a like-for-like revenue increase of 16 per cent.
However, Paddy Power Betfair admitted its sportsbook net revenue percentage was slightly behind expectations in the quarter, with results subsequently beginning to turn the way of punters in April.
"Since the end of the first quarter, at high-profile events such as the Grand National, Premier League football and the US Masters, results favoured customers, and overall gross win margins were weak in April," said Corcoran.
He added: "A key strategic focus for 2017 is the integration of our technology platforms. This project is on track and we expect both our European brands to be operating on a common platform by the end of the year, at which point customers will start to benefit from increased pace of new product delivery."
Paddy Power Betfair's shares were down 2.45 per cent at Wednesday lunchtime at 8,560, although there was a positive response to the update by analysts.
"This is a solid update from Paddy Power Betfair," said Gavin Kelleher of Goodbody. "Underlying growth in Australia, retail and US remains very impressive.
"The performance in the online division continues to lag slightly behind expectations, particularly in gaming. However, we remain confident the group can improve performance here, particularly once its platform migration is complete at year end."