Betfair shares boosted by pre election forecast hike

Shares in Betfair Group Plc., one of the world’s largest Internet betting exchanges, were the strongest riser on London’s stock exchange on Thursday after it raised profit forecasts.

Betfair now forecasts 2014-15 core profit will be between £113m and £118m, up from a previous range of £97m to £103m.

Betfair’s stock surged higher immediately after the release of its third-quarter trading statement and traded at new all-time highs, and as much as 17% firmer on the day to 2094p at last check.

There may be a touch of relief in the share price reaction today.

Puts Australia behind it, new offshore gambling tax ahead

Betfair shares had made little progress between September 2013 and October 2014.

The stock was partly weighed by Budget pledges last year, by UK Chancellor Of The Exchequer George Osborne to extend horse race betting taxes to offshore gambling firms.

Additionally, Betfair Plc.’s acrimonious relationship with Australian joint venture partner Crown Resorts, a casino operator, over Betfair Australia, did little to help its shares.

The business reported an A$1.6m full-year loss in March last year, its sixth in seven years, taking the loss total to A$47.3m since it began operating in 2007.

Betfair Plc. completed the sale of its 50% stake in Betfair Australia to Crown Resorts, last August.

The stake was valued at just £5.5m, raising a moderate risk of impairment (written-off loss) at some point, possibly booked in the company’s full-year, results of which will be released in June.

Lengthens lead vs. bricks and mortar players (Except Paddy Power)

Still, Betfair’s purely ‘virtual’ business model, has placed it at an advantage over traditional bookmakers like William Hill and Ladbrokes of late, amid increasing legislation of gaming machines and betting shops.

Betfair’s lack of retail outlets means it is relatively unscathed.

Betfair’s total shareholder returns in 2014 were around 50%, whilst those from traditional bookmakers were all in negative territory.

As per all gambling-related firms that take bets on events, Betfair ought to take a share of the record levels of betting expected on the UK general election which is set to take place on 7th May.

Additionally, few investors will be buying gaming-related stocks for growth, at present. Betfair’s 27.4 times trailing and 27.7 times forward price-to-earnings ratio continues to buff its appeal versus shop-centred rivals William Hill and Ladbrokes which average just over 15 times on a forward basis.

Paddy Power Plc. isn’t far behind its UK-facing rival, trading on prospective 25 times earnings. Also Paddy’s dividend yield of 2.1% is closer to the wider industry average at 2.6%, whilst Betfair’s yield is a below-industry-average 1.5%.

Main Q3 takeaways

• Revenue jumped 20% in the three months to 31st Jan.
• Investment in products and marketing helped increase active customers by half in core markets
• Sports and gaming income up strongly
• Q3 core earnings up 17% to £23.6m—36% ahead of analysts’ average forecast of £17.4m
• £7m pound hit from a new UK tax on profits from bets made by British-based customers

Shares are now than 60% higher on the year and there are inevitably signs of exhaustion in this momentum, although today’s launching point and yesterday’s highs should contain near-term consolidation.

In the half-hourly view of City Index’s Betfair Group Daily Funded Trade, the deeply overbought trade caused a ‘short signal, open sell’ to be triggered from the Slow Stochastic-based trading system within the 1230 PM interval.

From here, further upside in this time frame is limited.