Betfair
Revenues £477m Ebitda £120m
When a couple of significant investors who have been long-term shareholders suddenly offload a big chunk of their holdings, it is often regarded as signal to others to follow suit. When, as in the case of Betfair, those sellers are collecting a cool £260 million and one of those sellers is a co-founder, then it starts to set alarm bells ringing.
The near-3 per cent fall in the Betfair share price yesterday as the market digested Monday’s after-hours announcement of the proposed share placing by Barclays was a natural reaction. The question is: should smaller investors follow the lead of Edward Wray and Le Peigné, the investment vehicle of the LVMH tycoon Bernard Arnault?
It is pertinent to ask why now, given that Betfair is in the throes of a £6 billion merger with Paddy Power, the Irish bookmaker. According to Mr Wray, he was not seeking to sell but was approached by Barclays last week and told that the bank had an institutional client keen to buy some stock ahead of the merger. He decided to use the demand as an opportunity to diversify his investments.
Backing up the claim of strong institutional demand, Barclays ended up raising the size of the placing from 7.35 million shares to eight million, with Mr Wray collecting £97.5 million and Mr Arnault £162.5 million. Both parties retain sizeable stakes in Betfair and have agreed to a lock-up preventing them from selling any more shares for another 90 days.
Mr Wray and Andrew Black, his co-founder, pocketed a total of more than £30 million when they floated the business at £13 five years ago, but each retained a stake of about 10 per cent. While Mr Black has since whittled his holding down to 1.8 per cent, until this week his partner had not sold any more. Mr Wray’s loyalty has been rewarded. Having stayed firm through the slump to 616p in the aftermath of the IPO, he has benefited from a strong rally under the leadership of Breon Corcoran to a high of £33.72 before the placing.
The proposed merger with Paddy Power is a natural step for Betfair. The merger will create an online gambling powerhouse with strong earnings growth, returns on capital and cash generation. Mr Corcoran previously worked at Paddy Power and sorting out the new board has been smooth, while total synergies estimated at £50 million also contribute to a compelling future.
My advice Stay put
Why Paddy Power merger will create a thoroughbred online betting group with strong growth prospects
EasyJet
September passengers 6.6m
When was the last time you got on a half-empty easyJet? Or, for that matter, an easyJet flight where there were many unused seats at all?
Have you marvelled at the number of people now in the priority boarding queue? And when on board, have you recoiled at the smug looks of those who have taken their allocated seats in the front rows?
While all this may be irritating for the everyday passenger, it means bumper yields for an airline harvesting the money from loyal travellers, many of whom are prepared to pay a premium for being so. These, then, are good days for easyJet and its short-haul cohort: Ryanair, the market leader; Wizz Air, from the east; and Norwegian, to the north. This summer all have hit a sweetspot of a burgeoning leisure crowd in a recovering European economy and the new normal of business travellers being told by their finance departments to fly budget.
The secret for these airlines is yield management. Fill the aircraft up so far at a decent price and then charge the late bookers. After breakeven at, say, 70 per cent full, then everyone else on board is funding the shareholders’ dividends and the chief executive’s copious bonus.
Flying 68.6 million passengers in the financial year to the end of September — 6 per cent more than in the prior year — on aircraft 91.5 per cent full equates to pre-tax profits for the year of between £675 million and £700 million. That’ll be nearly 20 per cent more than in 2013-14.
The low oil price has encouraged carriers to put on more capacity, which is forcing fares down. This will cause turbulence over the less busy winter, but inevitably will unwind, with the strongest players — Ryanair and easyJet — still standing strong.
The City has been upgrading easyJet’s target price to as much £21 a share, but the stock is just below £18. On that analysis. there’s a little bit of upside, but with the stock trading on 13 times earnings and the dividend yielding more than 3 per cent, holders should continue to be happy to be so.
My advice Hold
Why With Ryanair, easyJet is the best in class in short-haul
Robert Walters
Revenue £377m Dividend 1.95p
It is impossible to argue with Robert Walters’ business case. A recruiter of white-collar jobs, such as bankers, lawyers and accountants, with a business that has built a strong presence internationally as well as in Britain, there is strong demand for its services.
However, the company has encountered choppy waters in recent weeks, with fears about China sending jitters through the market about its continued growth, as well as that of the wider Asian region.
Robert Walters quelled those fears yesterday. In an update on the third quarter, it said that trading had remained robust, with net fee income up 6 per cent, or 11 per cent on a constant currency basis, to £60.4 million. The news was particularly encouraging about Japan, its largest territory, where there had been no sign of margin pressure because of an acute skill shortage with bilingual professionals.
Robert Walters has survived three recessions and said yesterday that its employee headcount had increased by almost 100 to 2,820 in 24 countries. The company’s chief executive, the Robert Walters the company was named after, has been matching candidates with employers since 1985, when he set up his recruitment firm in an office above the Café Royal in central London.
The main concern is that the company is highly valued, trading at 20 times forward earnings. However, Robert Walters is confident that it can significantly boost the number of candidates it places a month, which would be a significant boost to the bottom line. The company’s track record indicates it will succeed.
My advice Buy
Why Good track record of earnings growth
