When Breon Corcoran broke ranks with his fellow betting industry bosses a few weeks ago and called for a big cut in the maximum stake for fixed-odds betting terminals, his rivals played down the significance. They pointed out that the Paddy Power Betfair chief executive had just announced his resignation, so wouldn’t be around to deal with the fallout, while his company’s betting shop estate was a fraction of the size of those of Ladbrokes Coral and William Hill, limiting fallout from a swingeing stake cut.
Mr Corcoran may well have been feeling a little demob happy, but to dismiss his comments as self-serving is unfair. He said he was calling for a cut not because he believed it would reduce problem gambling but because the issue of the so-called “crack cocaine of gambling” was causing “reputational damage” to the industry. “We now believe that the issue has become so toxic that only a substantial reduction in FOBT [fixed-odds betting terminals] stake limits to £10 or less will address societal concerns,” he said.
The Irishman had hit the nail on the head. While his peers kept saying that any changes must be evidence-based, he was being a realist, acknowledging that the review had gone well beyond the issue of evidence and had become a political football. Unfortunately for the bookies, most politicians and other interested parties have been kicking the ball into the same net in which the gambling industry have scored so many own goals over the years.
Although this week’s launch of a final 12-week consultation on fixed-odds betting terminals seems to have given the impression that a cut to £20 is now the likeliest option, the weight of opinion is still behind the “nuclear” drop to £2, which, according to a KPMG report, would cause the closure of half the country’s 8,700 betting shops and the loss of at least 15,000 jobs. Even if it does end up being £20, the threat to change spin-speeds on the machines poses just as big a risk to revenues.
With retail making up only a small proportion of its business compared with online, Paddy Power Betfair looks well-placed to ride out even a worst-case scenario from the fixed-odds betting terminals review, particularly as its UK retail estate outperforms its two big rivals on most financial metrics. Yesterday’s trading update from the FTSE 100 gambling operator shows retail revenues up by an industry-leading 12 per cent in the third quarter, though disappointingly online suffered a 3 per cent decline. The business has been hindered by the complex integration of its technology platforms after its creation-by-merger two years ago, although Mr Corcoran said that the migration of Paddy Power customers to a new version of Betfair was now almost complete.
Elsewhere, trading was a mixed bag, with the restoration of growth at its troublesome gaming division proving elusive. Conversely, its Australian business had a storming quarter, with revenues up 29 per cent in local currency on the back of a 33 per cent jump in stakes and promotions. The company lifted underlying earnings by 7 per cent to £121 million and said that it was sufficiently encouraged to tweak its guidance for underlying full-year earnings from between £445 million and £465 million to a narrower range of £450 million to £465 million.
With Peter Jackson, head of Worldpay’s UK business, set to take the reins from Mr Corcoran on January 8 and with cash on the balance sheet, Paddy Power Betfair looks well placed to play a key role in the consolidation widely expected to be triggered by the completion of the triennial review.
ADVICE Hold
WHY The shares are not cheap, but any post-review dip could present a buying opportunity
Indivior
After investors were left nursing a collapse in the market value of Indivior two months ago, Shaun Thaxter, its chief executive, embarked on a series of meetings to reassure the City that the drugs company was not facing an existential crisis.
Shares in Indivior, whose products treat opioid addiction, had fallen by as much as 40 per cent in intraday dealings on the London stock exchange after a US court ruling raised the threat of generic competition to a product generating 80 per cent of its $1 billion revenues.
The message from Mr Thaxter was that a next-generation successor to Suboxone Film, Indivior’s US market-leading, once-daily oral treatment, was at the end of the pipeline and would ease the pain of any hit from generic competition.
As expected, on Tuesday the US Food and Drug Administration recommended RBP-6000, a once-monthly injectable treatment, for approval. The positive vote, of 18-1, makes formal endorsement from the FDA at the end of the month likely. The shares rallied another 32½p to 404¼p yesterday in response.
The timing of generic competition to Indivior’s Suboxone Film and the launch of RBP-6000 have been crucial to its investment case. The market is expecting the latter by early next year, potentially ahead of Dr Reddy’s, the Indian company that is marketing a copycat version of Suboxone Film.
Indivior hopes that RBP-6000 will be another blockbuster, forecasting peak sales of at least $1 billion. Some analysts are even more bullish. Jefferies has pencilled in $1.3 billion in 2025.
The company, which was spun out of Reckitt Benckiser in 2014, has built up a dominant position in the United States, with a market share of about 61 per cent. It leaves Indivior well positioned to profit from the opioid addiction crisis in the US, which President Trump has called a “nationwide public health emergency”. About 2.4 million sufferers potentially are set to benefit, Third-quarter results today from Indivior will give Mr Thaxter another opportunity to prove that the company has weaned itself off Suboxone Film.
ADVICE Buy
WHY Near-approval of RBP-6000 positions Indivior to profit further from epidemic
