Paddy Power profit dips as horseracing favorites win

Fergal O'Brien

Thursday, Sept. 1, 2005 | 9:37 a.m.

Paddy Power Plc, Ireland's biggest bookmaker, said first-half profit declined 1 percent after a run of horseracing victories for Irish-trained favorites such as English Grand National winner Hedgehunter.

Net income fell to 15.8 million euros ($19 million), or 31 cents a share, in the six months through June from 15.96 million euros, or 31.6 cents, a year earlier, the company said today in a statement. Sales jumped 27 percent to 704 million euros. The shares declined as much as 5.1 percent.

With 145 of its 178 betting shops in Ireland, Dublin-based Paddy Power takes more bets than its English counterparts on Irish-trained horses. Victories for favorites including Hedgehunter, trained by Willie Mullins in County Carlow, offset increases in revenue from the company's shops, telephone business and Internet unit.

"The ups and downs of gross win are an inherent part of the business," Chief Financial Officer Ross Ivers said in an interview. "The real health of a bookmaker is: 'Are they growing the top line, increasing the number of bets and the size of the bets?' We are."

Paddy Power's gross win percentage -- the amount staked less the amount returned to customers as winnings -- declined in the period at the shop, phone and Internet businesses. The gross win was boosted a year earlier by the success of long shots such as the Greek team's victory at the European soccer championship.

The percentage continued to decline in the first two months of the second half, according to the company.

"The results weren't great," Ivers said. "Last year was absolutely stellar. It's an unreasonable comparator."

The shares fell as much as 80 cents to 14.80 euros in Dublin. They were at 15.10 euros at 8:38 a.m. local time, giving the company a market value of 755.1 million euros. The stock has gained 39 percent in 2005, heading for a fifth consecutive double- digit annual climb.

"Paddy Power's strategy has been broadly unchanged since flotation and continues to deliver visible underlying growth," Paul Leyland, an analyst at Seymour Pierce in London, said in a note to clients. He lowered his rating to "hold" from "outperform," saying the share price "fairly values the superior growth prospects."

First-half revenue growth was led by the Internet business, where turnover soared 63 percent to 175 million euros due to expansion in the U.K. Revenue in the shops rose 18 percent to 401 million euros, while telephone revenue increased 21 percent to 128 million euros.

Paddy Power is also benefiting as rising employment boosts household spending in Ireland. Irish consumer-spending growth may accelerate to 5 percent this year from 3.8 percent in 2004, the finance ministry forecast on Aug. 18.

"The economic environment in which we operate continues to support our growth, particularly in Ireland, where the economy has been performing very well," Chairman Fintan Drury said.

"Overall consumer spending in the U.K. has been sluggish but has had little impact" on sales.