Numis issue sell note on Betfair

25/06/2015 | By | Reply More

A few days old but worthy of note. Numis have issued a sell note on Betfair.

I respect Ivor Jones’s opinion on Betfair because he often asks very good questions during the conference calls and has a better handle on the business than most analysts. He also can be objective and I can’t! So it’s worth noting his comments. 

“It is not, in our view, on track for the market dominance which merits “unicorn” status and which appears to us to be implied by the share price. It has a great core product and a management team which deserves credit for driving a remarkable reinvention of the business model. But it has many competent competitors and is a long way into an upgrade cycle.

We normally reserve sell recommendations for companies where we see fundamental problems and Betfair is not one of those, in our view. However, we have been meekly increasing our share price target in line with the outperforming share price for some time. But, after further outperformance, we simply cannot make sense of a share price of more than our new target of 2,100p (up from 1,620p), 21% below the current price and, in our recommendation system, a sell.

There are, at least, seven companies competing at the top of the UK online sports-betting market. We believe that Betfair’s valuation should reflect that. We estimate that in calendar year 2014 Betfair’s non-US revenue increased around £70m (up around 22%). This was a strong performance (boosted by the World Cup and excellent margins), but; William Hill added over £80m of revenue (up 18%); Gala Coral added around £67m (up 50%); Sky Bet around £37m (up 21%). Bet365, Ladbrokes and Paddy Power are also very material players.

The 2015 full year results on 17 June will, we expect, be accompanied by another impressive presentation from a business on top form. However, we believe that once the market focusses on some of the challenges in 2016 the share price will start to deflate.”

Other analysts are mixed : –

Analysts at Nomura reiterated a “reduce” rating on shares of Betfair Group, Goodbody Stockbrokers Ltd reiterated a “buy”, Credit Suisse reiterated a “neutral” rating, HSBC reiterated a “buy” rating. Three investment analysts have rated the stock with a sell rating, two have assigned a hold rating and six have assigned a buy rating to the company’s stock. The company currently has a consensus rating of “Hold”.

In analyst speak a hold is a definitely don’t buy and anything less is a firm sell. Generally analysts are there to invoke fees by bulling and selling, but some are much better than others. Ivor was more bullish than I on the upswing so it was probably my prejudice influencing my judgement there. But I think he is right on the sell. The shares look very high and are discounting no slippage in good news. I don’t think that’s realistic.

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Category: Betfair

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