Company set to lose out on £13m of revenues following decision not to apply for permit to operate in Greece
The European Union may not be giving up on Greece - with another meeting taking place to discuss its financial aid package - but betting group Betfair has.
The company said it would withdraw from the Greek market until there was greater clarity on regulation. It had been expecting to make £13m of revenue and £7m of profit from the country in this financial year, so the news has seen its shares dip 4.5p to 748p.
Betfair said it had not applied for a permit to operate in Greece since the value of the permit was unclear and the gambling legislation in the country was, it believed, inconsistent with European law. It added:
Furthermore the associated fiscal conditions attached to these permits, which may include the payment of taxes on historical revenues, make the market economically unattractive.
Earlier this month, Greece announced financial penalties and criminal sanctions against gaming companies that operated without a permit. Betfair said it believed there were significant issues with the legality of this move, but has decided to withdraw anyway. Simon French at Panmure Gordon said:
We have reduced our 2014 and 2015 forecasts by around 12% per annum to reflect the exit from Greece and Germany.
Following on from the decision earlier this month to withdraw from Germany (around £14m revenue and £6m earnings) today's announcement that the group is to exit Greece means the group will generate a higher proportion of earnings from regulated markets. Whilst this strategy appears sensible the concern has to be that the group will be overly exposed to the UK market when the 15% point of consumption tax is introduced in December 2014.
The market responded positively to Betfair announcing its withdrawal from Germany and we believe the group is 'clearing the decks' ahead of the announcement of [chief executive] Breon Corcoran's future growth strategy due to be unveiled at the interim results on 13 December which we think will contain a significant element of cost reduction. We are also hopeful the group will shortly announce the appointment of a new group finance director to replace Stephen Morana. There are potential positive catalysts from a granting of betting exchange licences in Spain and California during 2013.
Nick Batram at Peel Hunt kept his buy recommendation on the betting exchange, saying:
Rather than stay in and fight a regulatory structure that the company clearly believes runs contrary to EU law, Betfair has decided to exit the Greek market. While it is disappointing to downgrade numbers, the reason for our buy stance remains intact. We believe there is significant potential to improve profitability and efficiency within the core regulated business, and that Breon Corcoran is the man to deliver this.
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