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Coronavirus: Paddy Power drops 10% despite Cheltenham confidence
27th February, 18:54Shares in Paddy Power owner Flutter Entertainment crashed by nearly 10% despite the betting company expressing confidence that the Cheltenham horseracing festival will go ahead next month amid fears mass public events could be caught up in the fallout from the spread of the coronavirus.
Speaking after the group reported a 38% drop in annual profit, Flutter chief executive Peter Jackson said while there is "clearly going to be some disruption" to sporting events, Cheltenham -- a key revenue earner for Flutter through its Paddy Power and Betfair brands -- has a 70%-75% chance of survival this year.
He said some events are financially more important to Flutter than others, with the likes of Cheltenham and this summer's football European Championships far outweighing the Olympics in terms of betting value.
Meanwhile, tougher regulations and higher betting operator taxes in its main markets of Ireland, the UK and Australia cost Flutter £107m (€127m) in 2019.
That led to the significant drop in its pre-tax profit to £136m from £219m the previous year. The company said its profit would have increased by 19% without the regulatory costs.
Flutter said it expects to take a £10m-£13m hit to its online revenues this year due to the UK banning credit card usage when gambling online.
From the middle of April, British-based punters will not be allowed use credit cards to make bets or deposit money into online betting accounts.
It marks the latest tightening of UK betting regulations, following last year's slashing in the maximum amount of money customers can bet when using in-store betting machines.
That move wiped £30m from the profits of Paddy Power shops in the UK last year. Flutter said in a full year its revenue hit from the UK credit card ban could be as high as £20m-£25m.
Flutter's total revenues for 2019 amounted to £2.1bn, 16% up on the previous year, and driven by performance in the UK, US, Australia and online.
Flutter said it will buy the remaining 49% of Georgia-based betting services firm Adjarabet it doesn't already own in 2022 and said its pending merger with Canadian online gaming operator Stars Group -- which is expected to complete later this year -- will help it further expand its international reach.
Separately, Stars reported a 25% increase in annual revenue to $2.53bn.
Unlike rival William Hill, which earlier this week earmarked this year to break even in the US, Flutter has not committed to a timescale of achieving net profitability in the American market. However, it said early signs from its online casino product in Pennsylvania have been very encouraging, while its largest US operations -- in New Jersey -- will turn "contribution positive" this year.
Flutter is active in four states in the US. In total, 14 states have now legalised sports betting, with the US market worth an estimated $10bn.
The group expects to go live online in at least three more states -- Colorado, Tennessee and Iowa -- this year, building upon its already strong US-based 350,000 sports betting customer base.
"Flutter Entertainment's results are in line with expectations. The share price over the past year has performed very strongly, up 43%, which largely reflects the strong growth and future potential of its business in the US," Richard Flood, investment manager at Brewin Dolphin Ireland, said.