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Paddy Power Falls; Forecast Cut on Smaller Web Bets

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Published on:
Aug/27/2008

Aug. 27 (Bloomberg) -- Paddy Power Plc fell the most in six weeks in Dublin trading as the Irish bookmaker cut its profit forecast, saying cash-strapped gamblers made smaller bets online while payouts on winning golf, horse and soccer wagers jumped.

Profitability will miss Paddy Power's own forecasts as the average online bet shrank, the Dublin-based company reported today. Gambling is not ``immune to a slowing economy,'' according to Chief Executive Officer Patrick Kennedy. Paddy Power said in May it would beat analysts' earnings estimates, buoyed by results from English horse races and the U.S. Masters.

Paddy Power fell 5.6 percent. The company also paid out more as Irish customers' local favorites succeeded, with Padraig Harrington winning golf's British Open and horse trainer Aidan O'Brien victorious repeatedly since June. Analysts had previously said greater reliance on the Web would help the company take share from bigger rivals in Britain.

``This is the first profit warning of a number in the sector,'' said David Jennings, an analyst at Davy in Dublin, said by phone today. ``Paddy Power is marking the path for everyone on the consumer slowdown.''

First-half net income rose 18 percent to 41.9 million euros, boosted by a tax refund, the company also reported.

Irish consumer confidence is near a record low as house prices fall and the economy faces its first recession in a quarter-century. Paddy Power has responded by adding more special offers, including refunds on bets on all horses that fell during the last day of England's Cheltenham races.

`Growth Story'

Operating profit for the year will be about 75 million euros, the company said in its statement, less than its previous forecast of 82 million euros.

Previously, Jennings had said Paddy Power was the only ``growth story'' in London-traded gambling stocks. Rivals William Hill Plc and Ladbrokes Plc both have more than 2,000 outlets and their British store growth is constrained by competition rules, he had said. Paddy Power is planning to double its British store network.

Paddy Power dropped 90 cents to 15.15 euros in Dublin, the biggest daily percentage fall since July 11. Vaughan Lewis, the stock's top-ranked analyst in a Bloomberg survey, forecast in June that the stock would advance to 28 euros in the following 12 months.

Today, Lewis said in a phone interview that demand during ``the last eight weeks was far weaker than we would have expected.'' He said the company's U.K. results were in line with his expectations.

William Hill, Ladbrokes

William Hill and Ladbrokes, the two biggest U.K. bookmakers, fell 4 percent and 3.1 percent, respectively, in London trading.

Internet betting accounts for about half Paddy Power's operating profit, according to Bloomberg calculations. For William Hill and Ladbrokes, it's less than a fifth.

Gamblers usually back favorites, benefiting bookmakers if outsiders win. Besides the Irish triumphs for Harrington and O'Brien in golf and horse racing, about two-thirds of the games at soccer's European Championships went in favor of customers.

``Those results do cost us, that is the ebb and flow of bookmaking,'' Kennedy, the CEO, said on the conference call. Gamblers benefited from 10 Irish wins by O'Brien-backed horses in the first half and 8 since the end of June, Kennedy said in a phone interview.

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