Wednesday, 29 June 2011


When this came for IPO I remember being very interested. It is a fantastic product, and I can't see why most punters wouldn't use Betfair rather than their bookies once they have opened an account. It also has the critical mass and liquidity, given the fact that its pretty much the preferred exchange for spread betting firms to lay off their exposures, to give it a bit of a moat.

It does suffer from some serious negatives;

  • gambling as an industry should always trade at a bit of a discount because of the legislative and political risk that it faces.
  • lack of growth in its core market, it can really only grow its market share, as moving into different sectors it loses its edge, ie. its not going to grow a poker business or online bingo business, as they are competitive and will suffer serious and terminal margin decline
  • its going to struggle to break into different geographic segments because of regulation, and would need to get to critical mass
As such its valuation when it IPO'd was a bit of a mystery, we're now getting to the price levels where it gets interesting though;

What are fair numbers? and what is a fair multiple?

Firstly the firm has no real debt and has net current assets of ~ £46mm
A 'fair' EBITDA of ~£50mm, which you're fairly comfortable with given the business model.
what's a fair EV/EBITDA then? 10x seems like a fair stock exchange multiple => 510p

that's still a long way south of here, but one for the watch list if we do have a real sell off.

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