Betfair Unveils Reform Plans

Published in Company Comment on 13 December 2012

Betfair (LSE: BET) also announces review of its dividend policy.

Betfair (LSE: BET) this morning revealed plans to reinvigorate its business, with three key elements: to focus on regulated jurisdictions, to invest in the brand, and to introduce greater accountability.

With this three-point plan, the gambling firm hopes to increase revenue sustainability, enhance its competition position and drive growth, and become a leaner and more dynamic business.

The news was announced within its interim results, which saw a 22% decline in underlying pre-tax profit to £21m from £27m at the same stage last year. EBITDA also dropped off, by 2% to £42.3m against £43.1m, while basic earnings per share was affected to the tune of 25%, slipping from 23.2p at H1 FY12 to 17.4p today.

However, group revenue increased 5% to £200.6m, and over £20m of savings have been identified to date, while Betfair has confirmed it is "exiting from investments in LMAX and Kabam".

Chief executive officer Breon Corcoran, who joined Betfair from Paddy Power on 1 August this year, commented:

"This is a solid set of results for the first six months of the year... The review we have carried out over the past four months has demonstrated a number of strengths. Betfair has a unique product offering, strong brand affinity and scale in the UK. However, we have also identified a number of areas requiring change and fixing these will take time.

"Recent regulatory developments have been challenging and we are reducing our exposure to markets with an uncertain regulatory future. We will focus investment within regulated markets with sustainable revenues. Creating a simpler product that retains the key advantages of the exchange, combined with investment to return the brand to its previously strong position, will allow us to increase our audience and accelerate revenue growth."

The gambling firm also announced a review of its dividend policy, with the medium-term payout target "increased to 40% of group profit after tax". Shares were up marginally on the news, around 0.5% at the time of writing, while the interim dividend has been increased by 25% to 4p per share.

Betfair floated at £13 a share during 2010 and, despite the shares falling by 50% -- having previously hit a low of 567p in 2011 -- the firm is still valued at about 20 times profits and offers a miniscule dividend.

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> Sam does not own shares in any of the companies mentioned.

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Comments

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buywhenhigh 13 Dec 2012 , 2:36pm

As a regular Betfair user I can attest that they are an awful company.

They rip off their best clients with a 60% charge on winnings, their system is awful, and their forums are full of very unhappy clients.

They have a monopoly of sorts at present, but it wont last and once there is a viable alternative I can see customers leaving Betfair in droves.

Awful company IMO, can see it going down the pan the way they run their site and treat their customers.

theRealGrinch 13 Dec 2012 , 4:50pm

all these gambling gangsters should be hounded out of town

tgldavies 13 Dec 2012 , 6:08pm

My experience of betfair has been pretty positive when compared to other exchanges. I feel the relatively high number of loyal customers makes it worth considering as an exchange and investment. Not sure I'm being charged 60% on my winnings however I don't seem to win that much . Perhaps I should just buy the shares.

tgldavies 13 Dec 2012 , 6:08pm

My experience of betfair has been pretty positive when compared to other exchanges. I feel the relatively high number of loyal customers makes it worth considering as an exchange and investment. Not sure I'm being charged 60% on my winnings however I don't seem to win that much . Perhaps I should just buy the shares.

LaxerNo6 13 Dec 2012 , 11:07pm

To echo tgldavies comment my experiences of Betfair have also been positive. I've never had any problems with them, and they have always honoured their bonus.
They charge 5% commission on profit (which I believe reduces in line with usage, though you have to be a heavy user to see this). As far as I know there is no other site that is even remotely comparable in terms of liquidity of the exchange. It would probably take significant effort to move their user base, and I don't see it immediately likely.
That said I don't own the shares, and at first glance they look expensive.

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