Paddy Power sees biggest stock fall in four months
5.2% drop attributed to Bank of America's Paddy's downgrade from "neutral" to "underperform" on fears over future UK gambling tax changes
Irish operator Paddy Power saw its share price fall 5.2% by the end of trading on Friday, its biggest drop in four months and just weeks after the stock was described by one senior analyst as the industry’s “star performer”.
The drop has been attributed to the Bank of America’s decision to downgrade Paddy Power’s recommendation from “neutral” to “underperform”, due to concerns surrounding the effect a proposed 15% gross profit tax on UK gambling activities could have on the operator’s profitability in the coming years. Just a month ago James Hollins, analysts at Evolution Securities, described Paddy Power’s share price as the “star performer” of the industry due to the “strength of the group’s brand, online product… and burgeoning mobile platform,” however he remained neutral on the basis that “the shares look expensive relative to the sector.”
Equity research analyst David Jennings of Davy claimed there was “no cause for concern,” with Paddy Power having the best performing share price in the industry over the past two years: “Paddy Power’s share price has risen 32% this year alone, and in a sector down 13% that is particularly impressive.”
The majority of Paddy Power’s revenues are derived from the UK and Ireland, with its own country’s government also drafting legislation to extend the 1% betting duty to online gambling operators, while betting exchanges such as Betfair will be subject to a 15% tax on commissions. This is expected to yield 10m next year and 20m in a full year.
In November Paddy Power saw gaming and B2B revenues from its UK and Irish-facing online operations rise by 33% year-on-year for the period between 1 July and 14 November.
Sportsbook amounts staked climbed by 31% in the same period, while the proportion of active sportsbook customers using the group’s mobile channels rose to 44%, up from 37% in the first half of 2011.
Online amounts staked in Australia also rose considerably following the acquisition of Northern Territories-licensed bookmaker Sportsbet on 1 March, up 23% year-on-year, while online gross win in the Commonwealth country rose 4%.
Earlier that month long-serving COO and former head of online Breon Corcoran resigned ahead of a move to Betfair in August 2012.