Bookmaker looks a safe bet

LAST NIGHT, Paddy Power, the company, hosted a Cheltenham preview night in the Submarine bar in Crumlin, Dublin.

The preview is one of hundreds of such events run to whet punters’ appetite. It’s one of the most important weeks of the year for the bookmaker, as it will be keen to snare a large share of the €500 million that is reportedly staked on the festival’s races.

Cheltenham has been good to bookmakers recently, with few favourites winning. The punters’ bad luck helped Paddy Power plc to win more money than usual from its customers, and thus to deliver increased profits and enhanced earnings for investors.

This year’s festival will tell the company a lot about the impact of the recession. The indications are that customers are betting smaller amounts, but they are still having the same number of wagers.

Part of the company’s business seems to have passed one test already. Analysts have suggested that the internet element of bookmakers’ businesses could be vulnerable, as customers will simply choose to close their accounts, which is easily done.

However, the division was Paddy Power’s star performer last year, delivering a 34 per cent increase in operating profits, to €42.8 million. Paddy Power’s British rival, William Hill, is to close 14 of its Irish shops. This may well help to strengthen Paddy Power’s position in the market.

Paddy Power plc

Turnover:€2.1 billion (+4%)

Gross win:€283.7 million (+2%)

Pre-tax profit:€79 million (+4%)

EPS:137.8 cent (+10%)

Dividends:54 cent (+6%)

Turnover was up 4% despite the €5 million cost of weaker sterling. Its gross winningswas €283.7m, a margin of 11%. This means that on average, customers lost 11 cent in every €1 they bet with the company. The margin is down on last year’s figure of 11.5%. Operating profit from this division was down €6.3 million at €28.3 million. However, it said its Irish retail division grew market share. The online division generated €42.8 million profits. The UK business was responsible for 50 per cent of operating profits.