James Moore: Betfair's worth a punt as online gambling grows

Corcoran, poached from Paddy Power, was a smart hire by Betfair but now he has to deliver

Time to start betting on Betfair? The online betting exchange remains the most intriguing company in the gambling sector and the one that polarises opinion the most. Fans brook no criticism of the company, citing its record of innovation and the potential for overseas expansion. Critics fret about "issues" with regulators and argue that growth prospects have been over-stated. The occasionally hyper-sensitive way it responds to some critics does it no favours.

Still, it's worth taking a fresh look at the group, which is due to update the market on 11 September.

Betfair now sits on a multiple of about 18 times forecast earnings for the year ending 30 April 2013 (interims are due in December) falling to a more modest 14 times for the year to 2014. The prospective yield is a modest 1.5 per cent, rising to 1.8 per cent, but this is a young company.

That's quite a bit lower than the rating of more than 20 times when I updated last year.

The recent figures from Paddy Power suggest online gambling is still growing quickly and if that feeds through to Betfair then there are grounds for optimism.

Breon Corcoran, poached from Paddy Power, was a smart hire by Betfair but now he has to deliver. I'd count on him to do so.

Paddy Power's fondness for stunts and blarney are well known. But the punters' pal is a ruthlessly successful commercial organisation. If Mr Corcoran can translate the success he enjoyed at Paddy Power to Betfair then the company may start to justify its rating, and its bloated cost base.

Am I changing my view? Not entirely. I still think the shares – which may take years to regain the £15 mark they smashed through shortly after its over-hyped flotation – are still pricey.

But it's worth noting that since the float, nearly two years ago, they have only once been this low. That was after last year's August wobble, which was a market-wide event rather than any Betfair specific news.

The shares have started to tick up recently, and I'd now be inclined to take a speculative interest. So buy but think about taking profits if they start to challenge the 900p barrier.

Talking of Paddy Power, its online division turned in a 7 per cent rise in operating profits to €48.5m (£38.5m) in the first half. Overall group pre-tax profit came in at €68.7m, up by a fifth, while the gross win from punters jumped 29 per cent to €311.2m, stripping out currency fluctuations.

Growth eased off a bit in May because the operation paid out on various money-back specials (when losing bets are refunded under certain conditions). Paddy Power will have e-mailed all its customers who benefited to tell them how much they saved as a result. In fact it sends regular e-mails detailing how much customers (I am one) have made from its offers – which keeps those customers very happy.

At 21 times forecast earnings, yielding 2.2 per cent, the shares are anything but cheap, but they are well ahead of the €40.39 we tipped them at in December, fully justifying our hold recommendation. I'd be a long-term holder, Paddy Power reeks of quality. But I wouldn't blame anyone for taking profits.

As for Ladbrokes and William Hill, I've long viewed both as undervalued. Hill's is one of The Independent's 10 to follow for the year and the company has richly rewarded my faith (they were at 202.8p when the article was published). On 11 times this year's forecast earnings, yielding 3.7 per cent, they are now looking fairly valued but I'd still hold.

The same goes for Ladbrokes, which has proved to be a bumpier ride. At 10 times full-year forecast earnings, yielding an impressive 4.8 per cent, I'd also rate it a hold. This column's last in-depth overview of the gambling sector said buy at 122.3p.

Probability, the mobile phone gaming company, is up by nearly a third since then. William Hill has already made an attempt at it, someone else eventually will. Keep buying.

Sportingbet has been the subject of takeover speculation. At 10.7 times 2012 forecast earnings, yielding 4.2 per cent, it looks fully priced to me. Outside of a nice Aussie business it has none of the attractions of its bigger rivals and has been the subject of failed deals in the past. Avoid.

The same goes for bwin.party which is on nine times forecast 2012, yielding 3.4 per cent. The shares have been on the slide, but not enough to tweak my interest. Sell. I feel these pure, online operations will struggle against bigger rivals.

What about 32Red? At 11 times forecast earnings, yielding 3 per cent, it also looks fully valued. But here's something to watch. The group sponsors Swansea City who have enjoyed a remarkably good start to the season despite losing their manager to Liverpool in the summer.

When teams it sponsors are in high-profile, televised matches the company enjoys a surge in new customer sign ups. If Swansea keep it up, steal a march on the market by buying in.

Sport
Mourinho lost his temper as well as the match
sportLiverpool handed title boost as Sunderland smash manager’s 77-game home league run
Voices
Sweet tweet: Victoria Beckham’s selfie, taken on her 40th birthday on Thursday
voices... and her career-long attack on the absurd criteria by which we define our 'betters', by Ellen E Jones
Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
VIDEO
Life & Style
food + drinkWhat’s not to like?
Voices
Clock off: France has had a 35‑hour working week since 1999
voicesThere's no truth to a law banning work emails after 6pm, but that didn’t stop media hysteria
Arts & Entertainment
Maisie Williams of Game of Thrones now
tvMajor roles that grow with their child actors are helping them to steal the show on TV
Life & Style
Lana Del Rey, Alexa Chung and Cara Delevingne each carry their signature bag
fashionMulberry's decision to go for the super-rich backfired dramatically
Arts & Entertainment
Kingdom Tower
architecture
Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit