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Despite the tightened regulation on machine gaming and new tax laws for the industry, Betfair revealed a 20% rise in revenue for the first six months of the year. The company upped its full-year guidance in March, and since the share price has rocketed 45%. Betfair previously had an end of year profit guidance between £97 million and £103 million, and that was increased to between £113 million and £118 million.
The surge in share price may seem excessive on the back of a reasonably small increase in profit outlook, but Betfair’s strong forecast sets it apart from William Hill and Ladbrokes which are both reporting declining profits and shutting stores. Two years ago Betfair rejected a takeover attempt from CVC Capital Partners, which offered £9.50 per share, but since then management have clearly added shareholder value by focusing on regulated markets and making a big drive for mobile gaming, which now accounts for 80% of its sports bets.
When Betfair reveals its annual figures, the market is expecting revenue of £474 million, and adjusted net income of £71 million. These forecasts represent a 20% rise in revenue and a 39% jump in adjusted net income. The gaming company will also report its second-half numbers on the same date, and dealers are anticipating revenue of £238 million, which compares with the first-half profit of £237 million.
Investment banks are very bullish on Betfair, and out of the 20 ratings, 12 are buys, five are holds, and three are sells. The average target price is £23.43, which is 6.5% below the current price. Equity analysts are very bullish on William Hill, and out of the 24 recommendations, 14 are buys, eight are holds, and two are sells. The average target price is 421p, which is marginally lower than the current price.
The share price has experienced exceptional growth since October and has cooled off recently, but support has been found at £25. If that mark is held the gap at £26.51 will be the first target, and then £27.24 will be in sight. If that stock drops below, the next support level will be £22.