UPDATE 2-Paddy Power profits rise as rivals chase online lead

Tue Mar 5, 2013 6:23am EST

* EBIT 136 mln euros vs analyst forecast of 138.5 mln

* Has captured 27 pct of mobile sports betting market

* Exchange rates could cut 2013 op profit by 10 mln euros

* Shares rise 2.7 pct as brokers' up target prices

By Padraic Halpin

DUBLIN, March 5 (Reuters) - Paddy Power's operating profits rose 14 percent last year even as the Irish bookmaker spent big on expanding into Italy and larger rivals challenged its online presence.

Paddy Power has been quicker than competitors William Hill and Ladbrokes at reacting to punters moving from shops to screens and made over three-quarters of its profit there after online customers doubled to 1.6 million since 2010.

With the nine percent online share of the 333 billion euros ($433 billion) global gambling market set to rise sharply as governments regulate internet betting, Ladbrokes, which in particular has lost a lot of ground online, is beginning to invest.

William Hill, Britain's largest bookmaker, has also spent almost 1 billion pounds ($1.5 billion) to take full control of its online business and expand into Australia and Spain as it reshapes a familiar British high street name.

"We have had full control of our online business as long as we've been around, we have had a business in Australia for some time so the things that other people are having to deal with, we're there already," Paddy Power chief financial officer Cormac McCarthy told Reuters in a telephone interview.

"I'd never underestimate competition, particularly players who have very strong brands and very strong positions but we've been at the head of this for a long time now. We think, yes, we have an edge. Absolutely."

The Dublin-based group has captured more than a quarter of the fast-growing mobile sports betting market, around double its share of the total online market, as revenue from smartphone and tablet computer betting rose 185 percent to 129 million euros.

That represented one-fifth of the 31 percent rise in full-year revenue as sales rose by 46 percent in Australia and almost as much in UK retail after it increased its number of shops by 44 to 217, still just one-tenth of William Hill's presence.

The rise in operating profit to 136 million euros was less than the 138.5 million forecast by eight analysts surveyed by Thomson Reuters I/B/E/S. Excluding start up costs of 20 million euros that were concentrated in Italy, profits rose 32 percent.

Shares in the group, which increased staff numbers by 20 percent last year, rose 2.7 percent to 65.8 euros at 1119 GMT as both Investec and Credit Suisse upped their target prices.

NO RUSH INTO AMERICA

On a constant currency basis, the rise in operating profit was just six percent and the group warned that a continuation of current British pound and Australian dollar rates could reduce operating profit by about 10 million euros this year.

Mirroring comments by William Hill, it added that trading since the end of last year had benefited from favourable sports results with revenues up 19 percent ahead of next week's Cheltenham horse racing festival, its busiest week of the year.

Following an expansion that has also taken it into France and Canada, Paddy Power was granted a preliminary gaming licence in Nevada last year but McCarthy said it was not rushing into anything in the slowly developing U.S. online market.

He said it will instead concentrate this year on Italy where it has captured over 5 percent of the online sector in the hope of breaking even there by the end of 2014.

Known for its provocative advertising, Paddy Power projected a slot machine on the Milan stock exchange in January to mark its expansion and chief executive Patrick Kennedy said Italy was tailor-made for the group's cheeky approach.

"We figure that any country where Beppe Grillo can get over 25 percent of the popular vote has to be one that's open to the Paddy Power brand approach," Kennedy told an analyst call, referring to the former Italian comedian, turned political leader.