The online betting group reported a 72 per cent increase up to £27.0m in second quarter pretax profit from a turnover of £647.7m (2005: £463.4m) and a gross margin of £83.1m, up 66% after a deduction for customer bonuses of £4.5m.
Sports betting turnover was £594.0m (2005: £434.7m), earning a gross margin of £29.4m (2005: £21.4m). The sports gross margin as reported was stable at 4.9%. Casino and gaming, poker and fee income contributed a further £19.2m, £31.3m and £3.2m respectively to both turnover and gross margin (2005: £12.6m, £13.2m and £2.9m). Of the £31.3m of poker turnover, Paradise Poker accounted for £27.8m (2005: £12.0m).
The number of registered customers rose strongly at 0.5m (2005: 0.2m), increasing the size of the group\’s customer database to a total of 3.9m. Of these new registrations, 159,814 new customers funded accounts in the quarter (2005: 98,799). All new customers were acquired through organic growth initiatives, at an average cost of £142 (12 months 2005: £137).
The increase in customer numbers, combined with a broader product range and further development into the US market of the group\’s shared purse technology, which allows customers to bet across sports, casino and poker platforms with one account, username and password, yielded a record level of overall betting volume for the group. The number of sports and gaming bets placed in the quarter rose by 38% to 166.8m. The average number of games played per day (including free to play games) on Paradise Poker rose by 147% to 2.10m and by 33% since the last reported quarter. During the quarter, the 23,077 active sports customers who played poker utilising the shared purse generated an average of $52,888 of rake per day, up 103% over the first quarter; while 23,005 active real money poker customers also bet on the group\’s US-facing sports or casino websites generating $1.9m of margin.
Overall margin performance was stable in the second quarter despite a period of well reported adverse sports results, reflecting the strength of the group\’s diversified geographical reach and breadth of product. The sports margin percentage, gross of customer bonuses, was stable at 5.3%. Margin from casino, gaming and fee income rose by 45% to £23.8m (2005: £16.4m). Margin from poker was £32.4m.
For the first half ended January 31, Sportingbet\’s pretax profit rose 126% to £41.3m from a turnover of £1,128.1m (2005: £819.2m) and a gross margin of £147.7m (2005: £74.3m). Sports betting turnover was £1,034.6m (2005: £779.4m), earning a gross margin of £54.2m (2005: £34.5m) at a gross margin percentage of 5.2% (2005: 4.4%).
“The benefits of the increased size of our business across our shared purse “one-stop-shop” environment have again been demonstrated in this quarter. During the three months ended 31 January 2006 we have recruited more new customers, taken more bets, played more games of poker and made more profit than in any previous quarter in the Group\’s history. Our cash generation in the quarter has also been at record levels, and I am delighted to announce the payment of an interim dividend of 1.0p per ordinary share,” commented Chairman Peter Dicks.
“We now have over 3.9m registered customers, who placed 290m sports and gaming bets in the first half of this year and played 339m games of poker. Our growth continues at a strong pace. Notwithstanding this increase, however, the group\’s customer dynamics have remained broadly in line with previous years. Important indicators such as customer acquisition cost, bet size, bet frequency and attrition have all remained consistent with last year. The stability of these indicators demonstrates the power of Sportingbet\’s multi-product, global offering and our ability to drive growth cost efficiently, without compromising the quality of customer attained,” said Chief Executive Nigel Payne.
The group\’s European region delivered its best ever set of results this quarter. Organic growth was strong and profitability was at a record level. The number of customers who bet on the region\’s sports betting websites rose by 55% to 159,661. Following the introduction of a wide range of new products during the quarter, particularly an enhanced in-running betting platform, the number of sports bets placed by these customers rose significantly by 74% to 8.7m, the equivalent of 54 bets per active customer per quarter (2005: 48 bets). The average sports bet size was relatively constant at £14. The sports margin percentage after betting tax was below historical levels at 6.6% (2004: 8.8%), reflecting the profile of sports betting results in the period.
Notwithstanding this significant scale change in volume, the cost of acquiring customers continues to be cost effective at £158 (12 months 2005: £137) per new active customer, yielding a cash payback in under six months.
The US region delivered a record quarter across all measures. As a result of significantly increased marketing activity, the number of customers who bet on the region\’s sports betting websites rose by 55% to 192,695. New active customers were acquired in the quarter at $253 per customer, a significant fall of 31% over last year (12 months 2005: $368), and yielding a cash payback of under three months.
The board is particularly pleased with the region\’s sports margin percentage in the quarter, which at 5.3% (2005: 6.0%) reflects the strength of the group\’s risk management and product offering in what has been an unusually volatile US NFL sports betting season. The total number of sports bets placed in the quarter rose by 38% to 12.4m. The number of sports bets per active customer per quarter was 64 bets (2005: 72 bets) with an average sports bet size of $54 (2005: $58).
The significant improvement seen in the group\’s Australian business in the 12 months to 31 July 2005 has continued in the first and second quarters of the current year. The quarter ended January 31 was the best for the group\’s Australian business since it moved onshore three years ago.
During the quarter, the percentage of bets taken over the internet rose to 74% (2005: 59%). The increased internet focus, augmented through the introduction of a new suite of sports internet products, a new website, improved risk management tools and increased marketing spend, has continued to drive the business forward. These actions, together with more normal sports results, have increased sports gross margin to 3.3% (2005: 1.3%).
The number of customers who bet on the region\’s sports betting business rose by 14% to 7,853. The number of sports bets placed by these customers rose by 25% to 1.0m at a rate of 133 bets per active customer per quarter (2005: 114 bets). The average sports bet size was lower at A$201 (2005: A$308), reflecting the increased activity on the more leisure-oriented internet platform. The cost of acquiring a new active customer rose to A$1,019 (12 months 2005: A$917), reflecting a strong marketing push following the introduction of the new technology suite.
The group\’s poker business continues to grow at a very strong pace. In the second quarter, the number of active customers who have contributed to rake at Paradise Poker rose significantly by 90% to 188,273, generating an average daily rake up 107% to $541,782. The cost of acquiring new active customers to Paradise Poker was $199 (12 months 2005: $139), yielding a payback period of less than two months. When compared to the previous quarter, the number of active customers who contributed to rake at Paradise Poker rose significantly by 12%, generating an average daily rake up 26%.
During the second quarter, Sportingbet has continued to invest a great deal of time and resource in attempting to improve the global regulatory environment. In Europe, the regulatory framework continues, as expected, to be shrouded in country specific political manoeuvres as opposed to any serious EU consideration of the issues. For example, the exclusion of gambling from the scope of the Services Directive, is considered as a missed opportunity to provide guidance to both Member States and to the European Court of Justice.
In the UK, Sportingbet continues to participate in discussions with HM Treasury and other UK bodies as to the appropriate licensing structure and level of tax to be levied on the industry. A decision from HM Treasury is expected in the March budget.
In the US, the group continues to work hard to educate interested parties as to the merits of regulation. A number of other events have supplemented this effort, including a high profile documentary on CBS 60 Minutes. Sportingbet notes the introduction of a bill by Bob Goodlatte in the House of Representatives and a bill by Jim Leach in the US Senate take little account of the progress the industry has made in addressing and overcoming the moral objections that have caused the bills to be introduced in the first place.
Sportingbet concluded its trading statement with an outlook on the trends for the second half of the financial year: “During the first three weeks of the third quarter, organic growth and trading volumes have continued at a strong pace across all of the group\’s product streams. Operating margins are in line, and, for some products, are slightly above the normal levels for this time of year and accordingly the board remains confident with regard to the prospects for the current financial year. Should the current level of strong performance continue throughout the second half of the year, then the board intends to re-invest any such excess in furthering the organic growth of the business.”
Following the trading statement, Numis increased its price target to 471p from 449p and upgraded its earnings forecasts for 2006 and 2007.
“They have outperformed expectations, despite a really bad sports betting margin, and that highlights the benefits of a diversified model,” said Robin Chhabra at Evolution Securities.
Analysts at Morgan Stanley and Dresdner Kleinwort Wasserstein also described the results as strong.
But the shares, which gained 5.2 per cent on Tuesday, were back down 4.9 per cent at 387p in early morning trading, valuing the group at around £1.6 billion.
“The results were excellent… You\’ve got a pretty broadly balanced business here that is driving forward at some pace. But there\’s a big line of stock depressing the share price,” said Altium Securities analyst Greg Feeheley.
In separate news, Bonaire Investment Holdings, the company representing the interests of the group of investors who sold Paradise Poker to Sportingbet in 2004, disposed of 17 million ordinary shares at a price of 385p each.
Following this disposal, Bonaire has been left with just over 39 million shares, representing 9.4 per cent of Sportingbet\’s issued share capital. Investec handled the share placing.
Elsewhere, shares in Fluxx closed up 9% as rumours swept the Frankfurt market that a UK based betting company was set to launch a bid for the company, as a means of forging a bridgehead into the German betting market.
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