UK hedge fund takes €58m punt on Paddy Power's share price falling
London-based hedge fund Marshall Wace has taken a £50m (€58m) punt against Paddy Power Betfair, betting that shares in the gambling group will fall.
The hedge fund, with about $39bn (€35bn) of assets under management, has taken a short position on almost 1pc of Paddy Power Betfair's stock, according to Central Bank data.
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Shares in Paddy Power Betfair are currently trading about 29pc lower than the high of roughly £91 (€105) they reached over the past 12 months - in May last year.
When investors short a share, they are betting the share price will drop. They borrow the company's shares from other shareholders and can profit if the price falls by buying back shares at a lower price to return them to their original owner.
Short positions can turn sour if the share price rises.
Paddy Power Betfair saw its underlying earnings before interest, tax, depreciation and amortisation fall 5pc to £451m (€522m) last year as it shouldered costs associated with its expansion into the United States. The group's revenue rose 7pc to £1.87bn (€2.1bn) last year, and said that its Paddy Power brand had continued to retake online market share in the UK.
Earlier this month, the UK's Gambling Commission made Paddy Power Betfair remove newly launched products in its stores that the regulator said may undermine the new introduction of reduced stakes on fixed-odds betting terminals. The maximum stakes were slashed from £100 to £2.
The Commission said it may also investigate key senior staff at bookmakers responsible for bringing the products to market.
Despite challenges in the UK and Australia, Paddy Power Betfair is hoping that the continued legalisation of sportsbetting in the United States could prove a boon for the company.
The group believes profits from its US division could hit $600m (€538m) within a number of years if more states legalise sportsbetting. Seven have so far done so.
In a recent research report, Davy Stockbrokers said the US is "potentially very valuable" for the group, but warned that the pace of regulatory changes there will be a key driver for Paddy Power Betfair.
The short position in Paddy Power Betfair revealed by Marshall Wace comes as Barclays raised its price target last week for the gambling group's shares to £68 from £64. Its shares were trading at about £65 in London on Friday. In March this year another hedge fund, US-based, HG Vora Capital Management took a short position in Paddy Power, equal to roughly 1pc of the Irish bookie's total shares, according to Central Bank filings.
Marshall Wace made a killing earlier this year after it successfully shorted shares in companies including Marks & Spencer and Ted Baker.
Paddy Power Betfair declined to comment on the short position.