Betfair downgraded to ‘underperform’ on slower growth prospects

Equity research firm Exane BNP Paribas has slashed the rating of online betting and gaming operator Betfair Group Plc (LON:BET) to ‘underperform’, down from a previous rating of ‘outperform’, to reflect expectations that the firm’s growth would be much slower than its current share price implies.

The broker said:
“Betfair has possibly the best business model and the re-launch of the company under the new CEO has been exceptionally successful. However, future growth should be much slower than implied by the current share price.”
Exane has a target price of 2,000p on Betfair’s stock.
Betfair’s shares were up 0.59 percent at 2,207.00p as of 12:35 BST in London trade today.
In its third-quarter trading update last month, Betfair said it expects its earnings before interest, tax, depreciation and amortisation (EBITDA) to stand at between £113 million and £118 million for the 2014/2015 fiscal year ending April 30. In the 2013/2014 financial year, the group booked underlying EBITDA of £91.1 million, a 24 percent increase from the previous fiscal year.
EBITDA in the third quarter ended January 31, 2015 increased 17 percent to come in at £23.6 million and revenue rose 20 percent to £114.6 million. The number of Betfair’s active customers grew 35 percent to 760,000, with a 50 percent surge in what it describes as the ‘sustainable’ markets of the UK, Ireland, USA, Italy, Denmark, Malta, Spain and Bulgaria.
In its report on UK gambling and betting companies, Exane has also downgraded bwin.party (LON:BPTY) to ‘underperform’ from ‘neutral’, citing disappointing growth potential. The mergers and acquisitions potential does not compensate for bwin’s weak earnings, the equity research company said. Exane analysts continue to consider online gaming and sports betting software provider Playtech Plc (LON:PTEC) as the ‘top pick’ of the sector, due to its sustainable growth in earnings and potential for M&A that would further increase the profits.
As of 13:09 BST, Tuesday, 07 April, Betfair Group Ltd share price is 2,200.50p.

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