- Underlying revenue up 2% from Sportsbook and US
- EBITDA up 24%, EPS up 57% to 49p
- Dividend hiked 54% to 20p
- Trading strong in new year
Online betting exchange Betfair thrashed analysts' full year forecasts as management tackled the cost base and the introduction of a more traditional bookmaker's sportsbook and increased marketing gave a much-needed kick to customer acquisition.
While underlying revenue rose a modest 2% to £393.6m in the year to end-March, the new focus on efficiency saw earnings before interest, tax, depreciation and amortisation (EBITDA) jump 24% to £91.1m and basic earnings per share leap 57% to 49p, ahead of analyst consensus of less than 46p.
The dividend was 54% higher at 20p, lifted by the proposal of a 14p final payout. Year end net cash stood at £210m, which some analysts had expected might results in a special dividend.
"Our strategy is working," said Chief Executive Breon Corcoran, referring to a turnaround that began in December 2012 to focus on sustainable markets, the sportsbook and reduce inefficiency.
Revenues from sustainable markets - which it defined as the UK, Ireland, Denmark, Malta, Gibraltar and US - now contribute 78% of group revenues, up from 72% the year before. Other markets are expected to decline by 15-25% per annum, worse than forecast.
Corcoran said the efficiency push allowed operating margin expansion at the same time as increasing marketing and technology investment to around £200m.
He said the company was now entering "an exciting phase of product development" to leverage both its exchange and sportsbook "to stand out in a crowded marketplace".
New sports betting products such as Cash Out and Price Rush, which integrates the sportsbook with better prices on the exchange, were powerful means of differentiating the company from competition and changing the ways customers bet.
"The introduction of the sportsbook, increased television advertising spend and the strengthening of our online marketing capability have broadened our customer reach and led to a 54% increase in the number of customers acquired in the UK and Ireland," he added.
Revenues were weak from gaming, falling 13% to £66.2m primarily due to the continued decline in poker and management's decision to focus on revenues in 'sustainable markets'.
Strong trading has continued into the new financial year, providing good momentum as the World Cup kicks off on Thursday.
Broker Investec, which recently moved its stance on the stock from 'sell' to 'hold', bemoaned a lack of special dividend, but noted that the group had highlighted the competitive advantage of this cash in an uncertain environment, "although we expect a return to shareholders over the next 6-12 months". It added that the predicted fall in non-sustainable markets was below expectations, which the broker said created a "clear headwind".
Deutsche Bank noted that Betfair faces "a larger hurdle" than many other bookmakers from the introduction of the Point of Consumption Tax, which the government is expected to bring into force in December 2014 at a rate of 15%, having previously enjoued tax of just 1%.
"Based on the outturn for 2013/14 this will involve an additional full year cost of £36m, of which around £18m will fall in the current year. Accordingly there is little reason to change our EBITDA forecast for the current year of £87m, slightly down on last year."
While admitting the rating "looks high" in price/earnings ratio terms, Deutsche also anticipates a return of capital "at some point".
Shares in Betfair were up 1.04% to 1,032.6p at 11:12 on Wednesday.