Thriving bookmaker can't afford to stand still
Thursday November 08 2007
Shares in bookmaker Paddy Power have been among the top performers on the Irish market and are seemingly immune to the negativity which has gripped the market for much of the year.
While the ISEQ Index has retreated from its 10,041 peak in February back to around 7,200 yesterday, a decline of some 28pc, shares in Power have headed in the opposite direction. When the ISEQ peaked in February, Power stock could be snapped up for around €18, compared to the €27 at which they traded yesterday morning, an increase of 50pc.
For a company that came to the market to find the capital to pay for what some saw as an overly ambitious expansion on to the electronic or internet platform, it represents a massive return.
As well as the capital growth, Power has been forking out dividends well ahead of forecasts and looking ahead the future seems equally rosy.
Only last week, Merrion capital stuck its neck out with a price target of €31.30, basing this on the prospect of increased share buybacks and dividend growth. The only negative is, rather perversely, the amazing performance chalked up by the bookie in the past year or so. It would be one thing if Paddy Power had beaten its peers with a fabulous set of interim results this year, it's quite another when the rising tide lifts all players, which is exactly what has happened.
Apart from the "freakish" set of interims reported by Power, others including Ladbrokes, William Hill, Boylesports and Celtic Bookmakers have enjoyed bumber profits.
For anyone considering buying the stock, these favourable betting results must weigh on their thinking. Can the run of good fortune be sustained and what happens if the tide turns?
The bottom line is that Power is sitting on a huge reserve, one which it has used to fund new internet portals as well as its spread-betting platform. But these represent reasonably conservative spends while the company has only added to the conservative image by buying up its own stock on a regular basis.
Long term, if it is to justify its fancy rating, Power has to continue growing the business. It has the resources to do so, but has been slow to embrace acquisition or indeed the expansion of its retail chain in Britain.
This may be set to change and evidence of a quicker expansion in the massive UK would represent the best vote of confidence in its future.
- Paddy Power
