City downgrades Paddy Power Betfair after cutting earnings forecasts

Citigroup cut its estimates for Paddy Power Betfair's future earnings due declining revenues from the exchange business and start-up costs from its burgeoning US business, among other factors.

Citi, which downgrade its rating on the shares to 'sell' from 'neutral' and slashed its share price target to £69 from £77, said the bookmarker's interim results last week showed falling revenues from the Betfair exchange, which is believed to have limited variable costs.

Analysts cut their 2018-2020 EPS estimates by between 1% and 7%, with worse gross profit than expected in Australia due to online revenue taxes and higher bank charges, the UK's new remote gaming duty from 2020 and fixed-odds machine stake crackdown, plus £10m US start-up losses in 2018.

Citi said further downgrades are "likely" to be forthcoming for 2019 forecasts as a result of the US start-up losses, albeit these are expected these to be positive for net present value.