Core NGR growth boosts Betfair recovery
Third successive quarter of double-digit growth" strong start to new financial year as Corcoran prepares to join as CEO on 1 August.
A third successive quarter of double-digit core NGR growth helped Betfair increase its annual core group revenues leap by almost 50% after tax, the operator has announced in results for the year ended 30 April.
Profit before tax came in at £41.6m, up 56.2% compared to the previous 12 months, however overall group revenues dipped slightly, from £393.3m to £389.7m.
Net gaming revenue from the exchange operator’s core operations came in at £346.5m for the full-year, up 6% compared to 2011, with the fourth quarter marking the first in which core NGR surpassed £90m.
Interim CEO Stephen Morana said he remained confident about the future in the week that fellow British bookmaker Ladbrokes warned its shareholders of further online decline, leaving the Gibraltar-licensed operator in good shape for when Breon Corcoran takes over as chief executive on 1 August.
The results marks a significant turnaround in Betfair’s fortunes from this time last year, when David Yu announced plans to step down as chief executive after six years at the helm and its share price falling 47% since the company’s October 2010 floatation. After reaching a nadir of 567p a share last August, that figure now sits at 735p but has surpassed the £9 mark on occasion under Morana’s stewardship.
Mobile has been one area of particular strength for Betfair over the last year, contributing £22.7m in revenue (5.8% of total group revenue) after a 122% year-on-year increase, while April saw close to half of all UK and Ireland active customers place a bet through the channel.
The first quarter of its 2013 financial year was described by Morana this morning as having begun positively, with an 8% increase in core revenues compared to the corresponding period in 2012. Numbers for the recently launched fixed-odds sportsbook are yet to be broken out, although Morana mentioned the ongoing European Football Championships as a contributing factor to its growth along with “A return to historical margin levels in risk products.”
Ed Birkin, analyst with Barclays Capital, noted a “potentially difficult July and August” for Betfair, but said in a note this morning: “A third consecutive quarter of double-digit core Betfair net gaming revenue growth should dispel the bear argument that the exchange has turned ex-growth, and we therefore retain our 1-Overweight recommendation.”
He noted issues surrounding regulation, with the operator poised to launch exchange products in Spain following the issue of licences earlier this month, and Italy, following the European Commission’s approval of an exchange betting decree in May.
Betfair is one of seven operators to have been awarded a six-year long Schleswig-Holstein licence with the region’s new interior minister Andreas Breitner reassuring operators earlier this week that the awarded licences were not under threat. However, uncertainty remains an issue in Germany with the country’s controversial State Treaty approved by the Federal Bundestag last night. This imposes a 5% turnover tax on a limited number of sports betting licences and has been dismissed by the European Commission as uncompetitive for private operators. The other risk is that Schleswig-Holstein’s new coalition government has also expressed a desire to return to the Treaty, however it has yet to be seen how this could work.
“We estimate that next year, two thirds of the company’s core Betfair revenues will be regulated; this is even higher for the group as a whole when accounting for regulated revenues from Betfair US and the Australian JV,” said Birkin.
Growth from Betfair US was minimal, rising 3% year-on-year to £36.1m, while the operator received a profit share of £4.3m from its Australian joint venture compared to a loss of £0.9m in FY 2011.
Betfair US losses were just £0.4m, described by analyst Nick Batram of Peel Hunt as “Much lower than we had expected.” The operator had prepared for the launch of exchange betting in California “ planned to take place in May “ but this was ultimately delayed until 2013, putting paid to Betfair’s chances of launching a site this year.
Batram retained his firm’s ‘Buy’ recommendation, as did analyst Ivor Jones of Numis adding: “We believe there is plenty for [Corcoran] to get his teeth into,” but noting that “The full year results show that the business he is taking over is in good shape and delivering solid revenue growth, with an upgraded technology platform to support further innovation.”
Today is Morana’s last results presentation before handing over to Corcoran on 1 August. In a statement he said: “I am pleased to have had the opportunity to lead the business in this interim period and would like to thank all employees for their support. We look forward to Breon joining us on 1 August.”