Sportingbet Q4 Trading Update

FY12 results are reported to be in line with expectations and we have marginally upgraded FY13 PBT as Australian synergies are coming through strongly. With the high-growth, regulated Australian business estimated to be worth 44-50p per share and Turkey disposal proceeds of c €126m still to come, the rating assigns nothing to the industry-leading European sport platform. Our SOTP is 36-66% above the current share price. European uncertainties remain but the cost base has been adjusted and the clouds are slowly lifting as more countries introduce licensing regimes, suggesting strong medium-term operating profit growth potential.

Strong performance in Australia
We expect Australian operating profit of £30m in FY12, up from £8.9m in FY11, due to strong underlying market growth and the successful acquisition and integration of Centrebet. Q4 like-for-like revenue increased by 24% and there remains the potential for new products (in-play and some poker) to be allowed in FY13.

FY13 PBT upgraded by £1.5m, new FY14 estimates
Centrebet integration synergies are reported to be ‘significantly’ ahead of expectations and we have increased our FY13 normalised PBT estimate by £1.5m to £48m, with Australia contributing £35m of operating profit. We assume overall breakeven from the non-Australian business (versus an £11m loss ex-Turkey in FY12e). We believe this is very achievable given the significant cost-cutting Sportingbet has already implemented, and despite additional burdens in regulated markets and economic pressures (particularly in Greece and Spain). Estimated FY13 EPS growth is more than 40%. Our tentative new FY14 estimate is for £37m of operating profit from Australia and £2m elsewhere, with PBT rising to £54m. Once markets settle down a 10% margin on £110m of non-Australian revenue would not seem overly ambitious.

Valuation: Low, whichever way you look at it
P/E and EV/EBITDA calculations are slightly complicated by the Turkish disposal proceeds (earn-out based, so included in the P&L, but finite). Depending on treatment we calculate a FY13e EV/EBITDA of only 4.3-4.4x, well below the peer group average despite Sportingbet’s European prospects slowly becoming clearer. We prefer a sum-of-the-parts approach and our estimated range has narrowed slightly to 45-55p per share (versus 42-55p published in June). Hoped-for newsflow in coming months about new Australian products or a US partnership would be very positive triggers.

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