Shares in gambling firm Paddy Power soared 4pc yesterday to a record high, valuing the bookie at over €3.2bn and confirming its position as one of Ireland's biggest companies even after it posted results that fell shy of some analyst expectations.
Investors are betting that the company will be able to drive momentum in its online business and that entry to new markets will also help to drive profitability in the longer term.
But the shares climbed even as some investors fret they're already overvalued.
Releasing its full-year results yesterday Paddy Power said that revenue during 2012 rose 31pc to €654m, while operating profit climbed 14pc to a record €136m. The figures were up 25pc and 6pc respectively on a constant currency basis.
The total amounts staked by punters with the company at its shops and over the internet and telephone jumped 25pc last year to just under €5.7bn.
That was up 19pc on a constant currency basis.
But despite Paddy Power now generating just 17pc of its profits in Ireland and 60pc of them in the UK, chief executive Patrick Kennedy told the Irish Independent yesterday that the firm has no intention of shifting its main stock exchange listing to the UK.
Chief financial officer Cormac McCarthy – the former head of Ulster Bank – said Paddy Power is happy with the scope of its institutional investor base and doesn't see how a listings move would benefit the betting firm right now.
Paddy Power's results were about 2pc below forecasts by Davy Stockbrokers, but the decline was propelled by start-up losses of €15m recorded at Paddy Power's new Italian business. The headline figures were ahead of forecasts by Goodbody Stockbrokers.
Paddy Power's Irish retail business suffered in the second half of 2012. Overall earnings before interest and tax rose 32pc to €14.4m at the unit in 2012, but actually fell 8.6pc in the second half of the year as gross wins declined.
In the UK, its retail arm posted total net revenue of €101.3m, up 29pc on 2011. Operating profit rose 29pc to €15.3m. The number of shops it has in the UK has just recently surpassed the 213 it has in Ireland – the first time it has more in Britain than in its home market.
Paddy Power is ramping up its presence in Italy after launching there last year. It has already captured just over 5pc of the country's sports market share and the country represents a significant opportunity for the group. Retail and online gambling revenues as a whole in Italy last year were €11.3bn. That compares to €8.9bn in the UK and just €1.3bn in Ireland.
But it's Paddy Power's mobile business that is proving to be its key growth engine.
Including its Australia online business, Paddy Power's total online operations accounted for about 75pc of the group's total operating profit last year.
Mobile gaming revenues accounted for 25pc of the group's total revenues during December. It has 1.3 million active online users outside Australia. Analyst Gavin Kelleher at Goodbody Stockbrokers described Paddy Power as the best business-to-consumer online operator "with significant growth potential in the medium term".