Paddy Power proves a safe bet as online gambling drives profits up

IRISH bookmaker Paddy Power yesterday posted a forecast-beating rise in profits in 2011 thanks to its fast-growing online business, which it plans to expand into Italy later this year.

The bookmaker made almost as much profit online last year as it did in its entire business in 2010. A 50 per cent rise in customers in the UK – its largest online market – pushed operating profit from website and mobile phone applications 26 per cent higher year-on-year.

Betting shops in Ireland now account for less than 10 per cent of Paddy Power’s profit thanks also to entry into markets such as Australia, France and Canada, and the group said it hoped to set up in Italy under its own brand before June’s European soccer championships.

Finance director Jack Massey said: “Italy is overall the largest betting market in Europe when you combine online and retail and it’s actually relatively small at this point in terms of an online market. We feel there’s good potential to flow into the online market from retail.”

As a proportion of the total gambling market, Paddy Power said only 4 per cent of Italians bet online compared to 19 per cent in the UK.

Across the group, Paddy Power took €4.6 billion (£3.8bn) of wagers last year, an increase of 19 per cent on the World Cup year in 2010, while pre-tax profits were up to €121.2 million.

Chief executive Patrick Kennedy said that, with only 9 per cent of the €285bn global gambling market currently online, there was significant scope for continued strong growth.

Kennedy said scale will be a prerequisite to take advantage of the opportunities: “Put simply, we are determined that Paddy Power will be in the ‘big-get-bigger’ segment of operators.”

Profits from UK shops have increased eight-fold since 2009 to stand at €10.5m. It said it was one of the fastest growing retailers on the UK high street, adding it was unhappy with an UK government review by shop guru Mary Portas that could make it harder for bookmakers to open shops.

Paddy Power said: “We would be disappointed if job creation on the high street would be hampered by the introduction of anti-competitive policies without a proper body of evidence.”

Bookmakers traditionally benefit from gamblers betting en masse during large, one-off sporting events and Massey said that the summer Olympics could contribute up to 0.5 per cent to group turnover this year with football’s European Championships likely to add around twice that.

David Jennings, an analyst at Davy Stockbrokers, said: “While the focus this morning is likely to be on the numbers, it is the sheer number of material growth opportunities still open to the group that really stands out in this announcement.”

Greg Johnson, a Shore Capital analyst, said “the outstanding growth potential and track record of the group” justified the stock’s premium rating compared to its peers.

Peel Hunt analyst Nick Batram maintained his “hold” recommendation on the bookmaker.

Batram said: “Figures came in ahead of expectations and demonstrate why Paddy Power is the highest-rated stock in the sector. Online continues to be the main driver while Australia put in a solid performance.

“Whilst a core holding in the gaming sector, we feel that the rating is up with events.”