Shares in Paddy Power tumbled today after the country's largest bookmaker said that its 2005 operating profits were likely to be lower than analysts expected.
The shares were down 22.1 per cent at €10.40 by 8.25am when the Irish market index was off 0.2 per cent.
The group said turnover had continued to grow strongly across its business and was in line with expectations for the second half of 2005 but that disappointing gross win percentages had continued, particularly in the past month when horse racing bets went against it.
"Assuming reasonable gross win percentages for the remainder of the year, we now expect operating profits for the year to 31 December 2005 to be approximately €30 million," it said.
Analysts had been forecasting a full-year operating profit of around €38 million .
But they said the market was reacting to the longer term outlook where Paddy Power said it believed the betting market was going through a structural change and that competition would increase in 2006.
"Future guidance on gross win margins across the retail estate is now expected to fall by 1 per cent. The guided range was 12-14 per cent previously, so is now brought down to 11-13 per cent," said Davy Stockbrokers analyst David Jennings.
The company blamed the changes on an increasingly competitive environment in the Irish market and the expanded introduction of tax-free betting in Ireland.
However, Goodbody Stockbrokers' analyst Neil Clifford said he expected the share price to recover once the market had digested the statement fully.
"The changes to non-retail gross win margin ranges . . . will in aggregate be positive for non-retail gross win, given the stronger growth outlook for Paddy Power's online sportsbook business," he wrote in a research note.
In August Paddy Power reported a dip in its first-half pretax profit despite a 27 per cent leap in sales, after a winning streak by gamblers took its toll on a fast-growing business.
It made a pretax profit of €18.4 million for the first six months of the year, down from 18.7 million in the same period of 2004. Earnings per share slipped to 31.72 cents from 33.3 cents.