Hi everyone,

I haven’t done a “Chart of the Week” post for some time now so decided I’d take a look at one this week. And seeing as it’s Paddy’s Day I thought who better to pick for a “Chart of the Week” post other than another Irish Paddy, leading bookmaker Paddy Power.

Paddy’s a True Irish Success Story

Founded in 1988 Paddy Power following the merger of 3 existing high street bookmakers the Irish bookmaker has grown rapidly over the last 20 years to a position where today it has approximately 300 retail outlets across Ireland and the UK. It’s also done a great job growing it’s online presence with www.paddypower.com one of the most popular betting sites in Ireland and the UK. In recent years the bookmaker has expanded it’s online betting and gaming options through a range of new sites including paddypowercasino.com, paddypowerpoker.com and paddypowerbingo.com. Paddy Power has also moved to take on longer term players Worldspreads and Delta Index in the Financial Spread Betting market with it’s own offering, www.paddypowertrader.com. Backed by a strong marketing campaign this revenue stream now appears to be bringing strong growth also.

And only last year it made it’s first move into Australia with the purchase of a 51% stake in Sportsbet, one of Australia’s largest corporate bookmakers, for €27 million. All this expansion is reflected in the bottom line also with the company announcing earlier this month that full year revenues for 2009 were €2.75 billion and profits of almost €67 million.

The expansion into new betting markets and continous revenue growth has been reflected in it’s share price performance also with Paddy Power one of the best performing stocks on the ISEQ over the last 10 years. It’s share price has risen from under €3 in 2000 to over €25 earlier this year, a not too shabby 8 fold increase. The stock is not cheap however, trading at approximately 20 times 2009 earnings of €1.21 per share, and therefore needs to keep up it’s high growth rates to justify this type of valuation. With current consensus coming in at approx €1.44 for 2010 earnings the firm appears to be on course to continue to deliver strong growth.

Plenty To Look Forward To In 2010

With Cheltenham in full swing and the World Cup kicking off in less than 3 months time Paddy Power can look forward to another bumper year. Although it will be hoping the sporting gods are less favourable to the punters this year than then were in 2009 when an exceptional run of results meant that despite revenues been up 31% over 2009 profits were down 15% year over year. According to the company this run of “exceptionally punter-friendly” results accounted for much more than the €9 million reduction in operating profits over 2008. Such runs of unfavourable results (for the bookmaker that is, happy days for the punters!) are an occupational hazard but one which over time tends to balance out in the bookmaker’s favour.

As well of the 2010 World Cup and the usual summer sporting events such as the GAA Championship, Gold Majors, Wimbledon, etc we can expect to see further moves by Paddy Power to expand it’s base outside of Ireland and the UK. It currently holds a 32% market share in Ireland and an ever increasing market share in the UK. Last years Sportsbet acquisition in Australia is no doubt the first of what are likely to be many acquisitions further abroad as the bookmaker looks to spread it’s brand globally.

Another move to increase it’s brand globally was the recent approach to sign a massive sponsorship deal with Tiger Woods. Paddy Power announced the week before last that an initial 5 year offer worth $75 million was turned down by Woods but that the company had not given up on what would be a massive coup to sign the world’s number one golfer and one of the most recognisable people on the planet (especially given all the recent controversy surrounding Woods’ personal life!). The approach certainly sounds genuine but one has to wonder if there is not a touch of a Mickey O’Leary tactic on the go here aswell, with Paddy Power knowing that even if their approach ends up been unsuccessful that the publicity surrounding the potential sponsorship deal itself would be no bad thing.

Technically Strong Support To Be Found Around €23

Before we finish up as is the norm on “Chart of the Week” posts lets take a look at the how the chart is shaping up technically. At first glance the stock appears to be in a sort of consolidation pattern after a massive run-up which has seen it more than double in the last 12 months. We can see very tight Bollinger Bands indicating the narrow range within which the stock has been trading in the Daily chart below.

Paddy Power Daily Chart (Click to Enlarge)

Shorter term it has been making a series of lower highs since it peaked at €26.00 in early December which would suggest going short but I would not be inclined to take that trade on. Taking the longer term view (see weekly chart below) I see this as a potential bull flag pattern, where the stock rests for a while before making it’s next leg upwards.

Paddy Power Weekly Chart (Click to Enlarge)

We can also see strong support for the stock forming in around the 2300 mark which I like as a good way to manage the risk on any Long trade. Currently trading at around 2360 ideally I’d like to get in about 50 points lower, preferably as close to 2300 as possible and then put my stop about 50 or 60 points lower.

Taking the strong track record of Paddy Power’s management team, their eagerness to continue to build and expand the company’s reach and an exciting summer of football lying ahead I see good potential for the stock to move higher from current levels.

Until next time,
Happy Trading (and Happy St. Paddy’s Day)!
SpreadTrader.ie : -)