Shares in Paddy Power fell by close to 10 per cent yesterday after the bookmaker warned that first-half operating profits would be around €4 million short of expectations due to the recent run of adverse horse-racing results for bookmakers.
The company blamed the record number of favourites winning at Cheltenham - favourites won 10 of the 20 races - for depressing its gross margins.
It was also hit by a poor Grand National outcome at Aintree as the Irish winner, Monty's Pass, was well backed by Irish punters.
However, the company said that as there had been no fundamental change in the underlying trading or risk profiles, it expected average gross margins to come within their normal range for the year as a whole although they will be at the lower end of that range.
It also noted that turnover growth remained strong in all its channels and left the business well positioned for 2003.
"The board remains very confident of the prospects for the group," the company said.
Its shares closed 55 cents lower at €5.60 following the profit warning, which comes just a week after a similar warning from British rival Stanley Leisure.
Company broker Goodbody said it was downgrading its 2003 operating profit forecast by 18 per cent to €18.5 million and its adjusted earnings per share (EPS) forecast by 17 per cent to 31.7 cents although it said the downgrade was "due to short-term trading issues and does not change the fundamentals of the business".
Davy Stockbrokers said, assuming unchanged margins in the second half, its operating profits forecast would fall from €23.2 million to €19.3 million while EPS would decline from 39.3 cents to 33 cents.
"It is important to note that a series of negative outcomes will have a detrimental impact on the earnings of bookmakers," Davy said. "But as sure as the betting industry will have a bad run of results, it will also have a good run."
It also believes the company's long-term prospects remain intact with strong growth continuing in the Irish market while the company continues to increase its presence in the UK.
Paddy Power said yesterday that it had opened two new betting offices in Ireland, one in Tralee and one in Phibsboro, Dublin, and two shops in west London. It has been awarded a licence for another London shop and has a further 10 licence applications in the pipeline.
