News analysis: half-year results
The recent spate of half-year results has shown great differences in financial performance.
A recent spate of half-year results has starkly demonstrated the differing fortunes in the financial performance of listed gambling concerns. Paddy Power and PartyGaming have produced successful results, whilst the likes of 888 and Ladbrokes have seen falling revenue.
Losers and winners all share a commonality in their commitment to developing viable online businesses, but the key difference between growing and dwindling profits is down to achieving the right business balance. The pivotal factors of getting online and offline mix right for traditional operators, continuing innovation for online only players and the willingness of all operators to conquer new territories.
Paddy Power has succeeded in achieving this mix. Nicholas Batram, leisure analyst at KBC Peel Hunt, sees the firm as this year’s star performer. In their recent half-year results, profit before tax for the first half of 2010 grew 54% to 52.5m.
Batram said: “Paddy Power stands out for a number of reasons. It has a fantastic track record. I like the mix of online and offline “ they have got the balance just right. Clearly the online business is driving nicely in Europe and Australia and I think there’s more to come there.”
“It’s a fantastic marketing organisation, it’s a brilliant brand profile and it’s delivering 30% earnings growth this [full] year which no-one can touch. And of course this is all coming from regulated countries. Everything about the Paddy package is highly attractive.”
PartyGaming and Playtech also reported successful half-year results, showing 30% and 31% growth in revenue respectively. Batram has put a buy recommendation on both companies, calling them “strategically in-line”.
Of course there were losers as well as winners within the half-year results which were announced last month. 888 reported yesterday that pre-tax profit had fallen 43% to US$8.4m (£5.4m) in the first half, which it blamed on a decline in the online poker market, currency exchange movements and the World Cup.
Ladbrokes and William Hill also posted unexciting results. “William Hill is in line with expectations,” said Batram, “but they’re adopting a cautious view. Until earnings start turning around and going in the right direction, things are going to languish. There’s not much earnings progression at William Hill. The online stuff may be doing well but retail isn’t really going anywhere.”
He continued, “Ladbrokes is in a similar situation to William Hill but there are a few more catalysts at Ladbrokes “ a relatively new CEO, and the struggling online and retail businesses could potentially create opportunities. In the meantime what do they do with the online business? Do they make a bold step like the William Hill/Playtech deal or do they push ahead organically, in which case it will take longer to come through. I don’t think the Ladbrokes egaming business is bad, they just don’t drive enough traffic.”
Partnerships and expanding into new territories are the drivers for growth in the current market, says Batram. “I think a lot of what Gigi Levy [CEO of 888] says is true, the way in which the market is evolving means it is going to be very difficult for companies to go it alone,” he affirms.
“Aside from big M&A transactions like Bwin/Party, local partners are a very important part of the equation for when those markets open up, for example PartyGaming with PMU in France. The future is regulated markets,” he concludes.