Sept. 19 (Bloomberg) -- Paddy Power Plc, Ireland’s biggest bookmaker, will grow its online U.K. betting business faster than competitors in an expanding market, Chief Executive Officer Patrick Kennedy said.
“I’d back us to grow at 15 percent to 20 percent a year, and continue to take share of a growing market” in sales terms during the next three years, Kennedy said in an interview last week at the company’s head office in Dublin. The overall online U.K. market will probably grow at 10 percent to 15 percent a year, he said, adding that Paddy Power isn’t looking at buying online rivals in the U.K.
Paddy Power’s bet on online gambling and its expansion into markets outside of Ireland are allowing it to boost profit, even as its home market struggles to exit three years of economic contraction. The Dublin-based company’s investment in mobile technology is putting it “ahead of the pack” in taking smartphone and tablet gamblers, Kennedy said.
Paddy Power shares climbed 4.7 percent to 38.79 euros on Sept. 16. The stock has gained 26 percent this year, giving the company a market value of 1.9 billion euros ($2.6 billion).
The company was the first bookmaker in Apple Inc.’s online application store for the iPhone or iPad and is producing a new “feature-rich” product for tablets, Kennedy said.
The company controls about 30 percent of mobile betting in the U.K., according to its own figures. In July about 37 percent of Paddy Power’s online customers transacted with the bookmaker by mobile device, and that figure will exceed 50 percent “quite soon,” Kennedy said.
“Our brand is becoming truly mass market in the U.K.,” Kennedy said. Buying other online betting businesses in the U.K. to expand “doesn’t make a lot of sense” for the company as it would end up acquiring existing customers, he said.
‘Cheeky and Fun’
Paddy Power’s image in the U.K. is “cheeky and fun,” according to Kennedy. The bookmaker’s advertising campaign with Imogen Thomas, a contestant on the “Big Brother” television program linked with Premier League soccer player Ryan Giggs, received a lot of publicity, he said.
Paddy Power has about 12 percent to 15 percent of the U.K. online betting market, according to an August presentation by the company. Paddy Power grew its overall online customers at an average rate of 40 percent a year during the last six years, while the average for William Hill Plc, Ladbrokes Plc and Rank Group Plc is 14 percent, Kennedy said.
“As new competitors come into the online market, Paddy Power will have to fight a little harder,” said Geetanjali Sharma, an analyst with Espirito Santo, who has a “hold’ recommendation on the stock. “William Hill is definitely putting on a more aggressive fight in the online space.”
Paddy Power earned 81 percent of operating profit from online operations in the first half, increasing its active online customers in the U.K. by 58 percent in the same period.
That helped boost first-half profit 9.6 percent to 47.4 million euros, even after the company said it received a “right bashing” at the Cheltenham horse-racing festival, where Irish jockeys had a record number of wins.
The Irish market, where Paddy Power, generates about 25 percent of its profit continues to look “pretty challenging,” Kennedy said, with the average size of bet staked in the first half falling to 17 euros from 22 euros three or four years ago.
“That is just people cutting their cloth to different economic circumstances,” he said.
Paddy Power, which took full control of Australia’s Sportsbet in March, also expects to grow its market share in the country, according to Kennedy. The Australian online market should grow by more than 10 percent a year for the next three years, with Paddy Power surpassing that, he said.
“There is still truckloads of opportunity for Paddy Power in the U.K. and Australia,” said Gavin Kelleher, a Dublin-based gaming analyst with Goodbody Stockbrokers. “Paddy Power is always improving its customer acquisition and retention, remaining ahead of its competitors, so I think they will continue to take market share.”
Paddy Power is continuing to “review” developments in the U.S., where online gambling transactions are illegal, Kennedy said. William Hill, the U.K.’s largest bookmaker by market value, this year agreed to buy three Nevada sports-betting companies as it positions itself for possible legalization elsewhere in the U.S.
“I think poker will be the first market that opens up, and poker will open up in the states either in certain large states or overall,” Kennedy said. “I think that is an opportunity for us but I think the big opportunity would be if sports betting opened up.”
Legalization of online gambling in the U.S., particularly sports betting, is a “contentious” issue, according to Goodbody’s Kelleher. With legislation at a Federal and state level still under consideration, not following rivals there isn’t “a bad thing” for Paddy Power, he said.
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