Six things we learned from Paddy Power Betfair's Q1 results

Paddy Power Betfair (PPB) posted its Q1 results this morning, headlined by a 17% year-on-year rise in pro-forma online revenue.

While group CEO Breon Corcoran praised the strong start to the year, the markets took a slightly dimmer view, with shares down 135p to 9,035p in early trading.

Corcoran was quick to point out that the enlarged group was just 92 days old and that early signs pointed to a bright future. So here are six areas where the corporate giant has reasons for optimism.

Corporate synergies

The firms said the integration of the two businesses is “progressing well” and they have started to bring together the “best attributes of each business to create a stronger combined operation”.

Following a senior management team reshuffle, the new leadership team has begun restructuring their divisions, involving the rationalisation of some duplicated roles and the consolidation of office locations.

“We remain confident that our target of delivering synergy cost savings of ?50m per annum will be achieved,” the statement said.

PPB CFO Alex Gersh added that the cost savings had “started well”, but refused to give full details, saying that the process was “very lumpy” and better considered holistically in August after the half-year results.

He did add that the cost of achieving synergies would come up front and would therefore be seen on the balance sheet this year.

Customer benefits

PPB said that customers were also starting to see the benefits of the merger as the two brands improved their product offering.

Early examples of this include making a number of proprietary games from the Paddy Power in-house development studio (Cayetano) available on the Betfair website and mobile apps, the use of Timeform analysis and data in Paddy Power retail shops, and the introduction of new markets such as minute-by-minute football betting on Paddy Power and Gaelic sports on the Betfair sportsbook.

“This sharing of products represents an early opportunity to enhance our customer proposition as a result of bringing our two businesses together,” the firm said.

Ready for regulation

In this morning’s analyst call, Corcoran was questioned about the business preparedness for various regulatory impacts including self-exclusions and anti-money laundering regulations.

When asked about the impact of increasing self-exclusion tools for customers, which could cost William Hill up to ?25m, Corcoran downplayed the impact on his own company, saying: “We take our regulatory obligations very seriously, but I don’t think we’ll be talking about [these tools] in future results.”

On the firm’s readiness for the EU’s 4th Anti-Money Laundering Directive – which some operators say could hit revenues by up to 5% – Corcoran added: “Our current processes are very robust and we don’t feel there’s much else for us to do to be ready for this. We don’t see any significant impact.”

Corcoran also dismissed the idea that Paddy Power had materially worse AML processes than Betfair.

Cheltenham results cost the firm ?20m

While sportsbook stakes increased by 21% to ?2.3bn, revenues were impacted by “adverse sports results”, most notably the Cheltenham Festival where PPB customers’ net winnings totalled over ?20m. Corcoran said the impact on the Irish retail had been particularly big thanks to the success of the Irish raiders at the festival.

The loss “far overshadowed” previously friendly football results, according to Corcoran, who said the group’s Q1 margin would have been around the 9% mark, rather than the 7.5% reported today.

Land of opportunity

Betfair US revenue was up 22% to ?20m with 19% growth at TVG – its California-based online horserace betting business – supplemented by continued growth in the Betfair online casino in New Jersey.

The firm will also launch a New Jersey horseracing exchange platform on 10 May, which will share liquidity with the UK.

Corcoran said the exchange could appeal to winning punters in a way that traditional fixed odds services couldn’t and might attract “money from the Caribbean”.

He said it would also be marketed locally, with a specific focus on a “Wall Street audience”, many of whom work in New Jersey.

Corcoran also pointed out that start-up losses from the exchange would be “immaterial” while it would allow the firm to talk to other state regulators about future opportunities.

Up Down Under

PPB’s Australia facing brand, Sportsbet, continued to expand its market share, despite adverse racing results and increased competition.

Revenue was up 25% to ?58m with a 31% increase in stakes to ?577m, driven by 42% growth in active customers.

The recent ban on online in-play betting and expected clamp down on betting on credit was described by Corcoran as “not materially sad news,” but rather “an incremental headwind we could do without”.