first_img The good news for Paddy Power Betfair is that the company now has certainty over the succession to outgoing chief executive Breon Corcoran, writes Scott Longley, with ex-WorldPay executive Peter Jackson to be officially anointed in early January.However, the slightly less good news is that he has a lengthy order of business to address if he is to achieve the grand hopes for the merged entity which is now one-and-a-half year years into an integration plan._______________This week’s third-quarter trading statement was described as “encouraging” by the company and certainly it showed signs that it was reaping the benefits of many of the recent merger rationalisations (job cuts and cost-cutting) with EBITDA up 7 percent to €121m.But the detail of trading performance was less rosy. Retail was good with revenues up 12 percent for the period and the US (up 18 percent) and Australia (up 29 percent) were buoyant. However, the European online business saw revenues decline 3 percent, albeit compared to last year when there was the tail end of a major football tournament taking place.Within that, sports was down 3 percent despite wagering growth of 10%, largely due to an 80 basis points fall in margin to 6.6 percent. Gaming was flat year-on-year.Corcoran has previously made much of the difficulties of competing in the gaming space. But the degree to which competition across the whole of Paddy Power Betfair’s regulated markets businesses is taking its toll would appear to be evident from the 4 percent fall in point of consumption regime revenues while the unregulated quotient (which has been going backwards until recently) rose 10 percent. These markets now account for 9 percent of online revenues.Questions also have to be asked about the betting exchange which was down 5 percent year-on-year and continued a “lacklustre trend” despite the tougher comparatives from last year, suggested Paul Leyland at Regulus Partners.Jackson undoubtedly has the firepower to fund whatever changes he might wish to bring to the business to enable the core online arm to get to the point of being able to fire on all cylinders. The company’s full-year guidance for EBITDA is now €450m-€465m, and according to analysis from Cenkos that will flow through to an estimated net cash flow of €308m this year rising to an estimated €464m in 2019. It gives Jackson him plenty of ammunition in terms of marketing and promotions.Simon French at Cenkos suggested that further M&A might be in the offing once Jackson takes the reins (and with the protracted triennial review finally being concluded at around the same time). Still, the obvious lesson – once again – is the degree to which post-merger integration issues can hold a business back.Paddy Power Betfair need look no further than its Sportsbet business in Australia for how a lack of distractions can allow a business to power on.Despite further regulatory tightening net revenue rose 29 percent for the quarter, representing an acceleration on the 21 percent recorded in the first half.On the conference call, the company noted that it believes that the instigation of further point of consumption tax (PoC) regimes will come on a state-by-state level rather than as a Federal move. The management noted that Tasmania is the latest to signal it hopes to propose a 15 percent tax rate.Leyland noted that even with the introduction of PoC in Western Australia, for instance, the business is “better placed to bear” the extra circa $12m in annualised costs. “Sportsbet continues to be the jewel in the crown, possibly due to the lack of merger business disruption and also a less capable (if not less crowded) competitive set.”For French, an obvious starting point for Jackson would be to cast a fresh eye over Paddy Power Betfair’s decision to concentrate almost exclusively on regulated earnings For him, the rise in third-quarter unregulated revenues might be a precursor to a more concerted strategy reverse.“We have long questioned Paddy Power Betfair’s aversion to unregulated markets given the strong growth opportunities available,” he says. “We think a fresh pair of eyes may conclude that certain countries in South America, Asia and Africa all offer acceptable risk reward opportunities.” Flutter begins ‘new era’ by completing merger with Stars Group April 30, 2020 Flutter moves to refine merger benefits against 2020 trading realities August 27, 2020 Scott Longley – Confusion reigns over FDC’s second betting rights deal July 14, 2020 Submit Share Related Articles StumbleUpon Sharelast_img

Scott Longley: Jackson sizes up online hole at Paddy Power Betfair

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