Davy Research

Paddy Power Betfair

Near term re-rating unlikely without capital return; focus needs to be inward-facing over next 12 months
Gaming
Paddy Power Betfair

DAVY VIEW

Paddy Power Betfair has de-rated 20% year-to-date on the back of the surprise CEO announcement, ongoing sluggishness in Europe Online and rising tax risks. With the new CEO unlikely to be in situ until 2018, a near term stock re-rating looks unlikely. That said, there are self-help measures that the group could take to ease shareholder pain in the interim. The group’s balance sheet constitutes the ultimate “rainy day” fund and we believe that now would represent a good time to put it to use. We estimate that the group could return 14% of its market cap to shareholders and still leave the CEO with a war chest of £1bn by the end of 2018. Given that the group probably needs to be inward facing over the next 12 months anyway, this option looks particularly beneficial to us. Ultimately, we remain positive on the long-term prospects for the group. But in the absence of a near-term catalyst like a capital return, the stock is likely to remain largely range-bound until full year results. We lower our stock rating to ‘Neutral’.

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  • RATINGS AND PRICE CORRECT AT TIME OF ISSUE


  • Paddy Power Betfair

    Closing Price: 680500p

  • RATING 29/08/17

  • PREVIOUS RATING 18/09/15

    Outperform

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