Punters’ luck hammers Power profits

BOOKMAKERS Paddy Power came a cropper at the Grand National and Cheltenham with a winning streak by punters, slashing a full €4 million off expected operating profits for the first six months of the year.

The market reacted swiftly to the news, wiping €33 million off the company’s market capitalisation as the shares plunged in value by 12.5% from €5.60 to €4.90 in early trading. This fall grew to 13.39% by midday, but by close of business, the shares rallied slightly and were trading at €5.05, a 9.82% fall on the day.

The reversal of fortunes in the opening furlongs of Paddy Power’s first six months was confirmed in a profit warning statement issued by the company yesterday and comes hot on the heels of similar announcements by British rivals like Stanley Leisure.

Shares of Stanley Leisure a week ago also posted their biggest-ever decline after the company said profit will miss analysts’ estimates because results were unfavourable at the Grand National and half of the races at Cheltenham were won by favourites.

Power’s finance director Ross Ivers said that while no company liked to issue a profit warning there was an upside to the news.

“Its good for business when the punter strikes back, a winning streak for punters keeps their enthusiasm going,” he said. Paddy Power’s broke the news in a carefully worded statement yesterday.

“Recently gross margin has been depressed due to unfavourable horse racing results, most notably the record number of favourites winning at Cheltenham combined with a poor Grand National outcome. As a result, operating profits in the first half of 2003 will be approximately €4 million short of expectations.

“As there has been no fundamental change in the underlying trading or risk profiles, the board expects average gross margins to come within their normal range for the year as a whole, albeit at the lower end of that range,” a portion of the statement said.

Stockbroking analysts were very sanguine about the declaration from Powers. Dolmen’s Pat Duggan said the results were very disappointing

Davy’s analyst Barry Dixon noted that the profit warning was not good news for the company.