Paddy Power Betfair on a Losing Streak as Numbers Disappoint

(Bloomberg) -- A glut of horse-racing cancellations in the U.K. and Ireland and too many winning favorites in Australia made it a grim first quarter for Paddy Power Betfair Plc.

Shares in the betting giant fell as much as 7.9 percent on Wednesday, the most since August, after the company reported a drop in underlying earnings for the quarter and issued a full-year forecast that reflected its tough start to the year.

Small consolation came in the form of a 500 million-pound ($682 million) return of cash to shareholders and a resumption of growth in online gaming revenue since the start of February.

Here's what analysts are saying:

DAVY (David Jennings)

• 1Q revenue of GBP408m was 5% below Davy's estimate of GBP429m and flat year-on-year on a constant currency basis
• Main factors contributing to the lack of growth were a 7% decline in exchange revenue, lower-than-expected net revenue margins in Australia and weather-related cancellations
  • 14% of U.K. and Irish horse races were canceled in 1Q18 versus 4% in 1Q17
• Main crumb of comfort is that gaming performance since the beginning of February has improved somewhat, with run-rate +4% in February/March
• Expects to revise FY18 underlying Ebitda estimate to the lower end of co.'s guidance
• Overall, says update re-emphasizes that returning the group to double-digit growth is going to take time
• Retains neutral recommendation

SHORE CAPITAL (Greg Johnson)

• 1Q outcome was disappointing
• Co. expected to face GBP43m of headwinds in the current year, though this could be as high as GBP130m if GPT is rolled out across Australia at 15% and a GBP2 stake limit is introduced in the U.K.
• Group unlikely to offset such potential risk through organic growth
• Cuts recommendation to sell from hold

GOODBODY (Gavin Kelleher)

• Bad weather, reduced customer recycling of winnings and adverse Australian sporting results led to a “soft” 1Q
• Performance will come as a surprise, but should be viewed in the context of a number of one-off factors (weather, Australian sports results)
• Plan to cut FY18 Ebitda estimate by 1%-2% from GBP494m, bringing it into line with mid-point of management's guidance range
• Guidance range and announcement of a GBP500m buyback “should offer some comfort”
• Reiterates buy recommendation

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Angela Cullen

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