LONDON (Alliance News) - Deutsche Bank has increased its earnings estimates for Paddy Power, saying that the Irish bookmaker posted strong first-half results on Wednesday as it announced a proposed merger with rival Betfair.
Deutsche Bank raised its financial year 2015 earnings before interest and tax forecast by 7% to EUR176 million, and by 7% to EUR203 million for the financial year 2016, after Paddy Power Wednesday said that revenue in the first half of the year grew 33% to EUR528 million, 1% ahead of Deutsche's estimate.
However, the 33% rise in Ebit to EUR80 million was 10% behind Deutsche's EUR90 million forecast, although the broker noted that this was driven by one-off losses of EUR13 million.
Deutsche said it thinks that cost savings of at least EUR50 million will emerge from Paddy Power's proposed merger with Betfair, but noted that "the key rational for this transaction in our
view is around creating scale to help offset rising taxes and rising investment costs, rather than just cost savings".
Deutsche maintains its Hold recommendation on the stock and raises its price target to EUR101.00 from EUR80.
"These are the stand out results in the sector so far and in our view reinforce the importance of Paddy Power?s Digital product investment/geographic diversification/regulated market focus, and with an agreement in principle to merge with online peer Betfair, creating a global leader with increased flexibility to further invest in new products to drive greater differentiation and take increasing market share at improving incremental margins. We think the group?s investment case continues to remain compelling," Deutsche said.
Shares in Paddy Power were trading up 3.5% at EUR96.50 Thursday afternoon, while Betfair shares were up 2.8% at 3,223.00 pence.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
Copyright 2015 Alliance News Limited. All Rights Reserved.
