The company - which joined the stock market in October at £13 a share - dipped 5p to 825p as Spain became the latest area to cause concern. Paul Leyland at Investec issued a sell note following signs from Spain that approval of betting exchanges could be delayed. He said:
A conference took place yesterday in Madrid, during which Spanish regulators gave more colour on the potential future shape of the online gambling market. One of the suggestions was that not all products would be available in the first wave and some may have to wait, including exchanges. This reinforces our view that even 'positive' regulation can have a sting in the tail, which could materially impact 2012-13 forecasts. We therefore reiterate our sell recommendation and 445p discounted cash flow based price target.
We see this as a three-fold problem for Betfair. First, and most obviously, if this approach is adopted, then on regulation Betfair is likely to lose most of its 4% or so of core revenue from Spain as well as its key USP, even if it gets a licence for other products; given the high fixed cost base and capex, the impact on free cash flow would be material, in our view.
Secondly, Betfair may not get early certainty on when exchanges will be allowed and under what terms, making forward investment in the market and product difficult. Finally, competing against more settled betting brands and products (with incumbent lobbying power) is likely to be far less attractive than being part of an early regulated 'land-grab', leveraging an existing '.com' presence.
Other countries are already cool on betting exchanges, including Italy and France and possibly Cyprus, Germany and Greece. In fact Betfair this week said it had filed a complaint with the European Commission about Greece's draft gaming law, which it said unfairly excluded it from the market.
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