Paddy Power shares tumble 8%

Shares in betting and gaming giant Paddy Power slumped 8% yesterday, on the back of the company saying it expects to see less than double digit percentage growth in operating profits for the first time in four years in 2013.

The profit forecast, which sent the company’s share price spiralling by €5 to €57.45, was prompted by a poor run of sporting results in recent months (including Champions League football and Australia’s Spring Racing Carnival), resulting in the firm’s gross win tally 10m short of expectations.

While the Dublin-based company stressed, yesterday — via its latest trading update — that its overall underlying performance has been good since the halfway point of the year, it now expects low-to-mid-single digit percentage operating profit growth this year, in constant currency terms and before currency translation headwinds of 3%.

Paddy Power shares open down 8% following profits warning this morning.

— Ian Guider (@ianguider) November 19, 2013

“This is approximately €11m lower than the mid-point of our guidance at the time of our interim results,” management added.

On an overall basis, Paddy Power’s second half net revenues are currently up by 7% year-on-year; with amounts staked by punters rising by 14% on the same period last year. Management added that the business retains “significant financial flexibility to take advantage of potential opportunities”, with no debt and net cash — as of Nov 17 — of €235m (or €171m excluding customer balances).

On an operational basis, the company said that its retail operations — in both Ireland and Britain — remain healthy, with punters’ betting stakes still rising. Online turnover in Australia has grown net revenue by 30% in the second half; but competition in the British online sector has continued to strengthen, ahead of local tax changes next year.

During this period of industry change, competition is intensifying and we will continue to invest efficiently to maintain and enhance our competitive position for the long term,” the company said.

According to David Jennings of Davy Stockbrokers which has an ‘under-perform’ tag on Paddy Power stock: “Investors are happy to look through adverse sports results, they go with the territory. What they will be far less comfortable with is the competitive environment now clearly emerging in the UK, where desperation among sub-scale operators is starting to set in.”