Investec downgrades Paddy Power as it explores US opportunity
Investec downgraded Paddy Power Betfair to 'sell' from 'buy' on Tuesday, cutting the price target to 8,010p from 8,570p as it revisited the investment case and explored the US opportunity in detail.
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"We believe that an acquisition strategy would derive more value than a share buyback strategy. Furthermore, PPB is losing UK market share to GVC, William Hill and TSGI.
"We believe the group has a significant first mover advantage in the US, but short to medium upside is unsupported by fundamentals."
Investec said the new target price factors in the share buyback, the government's Triennial Review and a remote gaming duty increase of 500 basis points, among other things.
It noted that Paddy Power has guided to FY18 earnings before interest, taxes, depreciation and amortisation of £470m to £495m. However, due to the early implementation of point of consumption taxes in Australia and unguided investment in Fanduel Inc - where it expects a loss of around £10m in FY18 - Investec sees downside risk to guidance.
Investec said Paddy Power looks expensive versus its two keep peers, GVC and William Hill, on a fully adjusted EV/EBITDA, price-to-earnings and free cash flow yield basis.
At 1550 BST, the shares were down 3% to $54.61.