group faces unexpected blow from new laws to limit gambling
Betfair shares have dropped around 4.5% after
Cyprus introduced regulation to restrict online gambling.
beleaguered eurozone state said it would restrict online casino and poker as
well as exchange betting. Betfair said Cyprus contributed around 4% of group
revenues last year, and around £9m of profit. Its shares have lost 34p to
722p on the news, but it is taking advice on the legality of the move. It said:
The company believes
the legislation contains serious flaws and, in certain areas, is inconsistent
with European Union law.
Betfair...will be taking all necessary steps
to reduce the impact on profitability through both legal action and cost
Michael Campbell at broker Daniel Stewart said he believed Cyprus also planned
to introduce a new betting tax of 13% of gross profits.
This is another blow
to Betfair's exchange betting business. The stock trades on around 6.6 times
2012 consensus EBITDA which appears reasonably priced, though our biggest
concern remains whether other markets will, like Cyprus, ban exchange betting
which will hamper the business's ability to grow outside of its core UK market.
Karl Burns at Shore
Capital said full year forecasts were likely to be reduced after the news:
Overall markets have
begun the week on a downbeat note, on renewed worries about the eurozone as
Spain's 10 year bond yields climb above 10% again, ahead of the latest EU
finance ministers meeting. The FTSE 100 is currently down 23.49 points at
We retain our
hold recommendation, highlighting that whilst we believe the exchange is a
unique and highly cash generative business model, in addition to reporting
strong underlying revenue growth recently, we continue to harbour concerns over
the pace of exchange regulation in Europe, with Europe around 40% of group
revenue, whilst comparatives will toughen through the year.