Direct Line, Paddy Power: Betting on better weather

Direct Line, Paddy Power: Betting on better weather

Direct Line, Paddy Power: Betting on better weather

Mike van Dulken, Head of Research at Accendo Markets, commented this morning:

The Beat from the East strikes again and today it’s the turn of two rather different FTSE companies to highlight the damage inflicted, both footing the blue-chip index.

 

Firstly, Direct Line says the recent “freezing weather hit many drivers, households and businesses hard” (in other words, all customer groups) and it expects claims from the cold snap to use up its full annual weather budget. Management continues to back FY guidance, clearly hoping the rest of the year is easier going, but any additional inclement weather (e.g. floods, cold) could inflict even more serious damage on the group’s claims ratio and thus profits.

 

Group Q1 revenues fell 5% (in-force policies -2.2%), although this can be explained by end to partnerships with Nationwide and Sainsbury’s, cutting revenues from the Home Partnership segment by more than half (6.1% of group vs 12.2% prev). This has rather taken the shine off 2.9% Motor growth (now 52% of group revenues/76% of own brand (48%/77% prev.) and the stability seen in own brand Home, Rescue and Commercial which helped deliver own brand (organic) policy revenues +4.7% and in-force policy numbers +5%.

Second up is Paddy Power Betfair, which has taken another leg down, hot on the heels of the threat of a £2 stakes limits on those controversial Fixed Odds Betting Terminals (FOBT). The latest drop comes courtesy of weak Q1 revenues (-2%/flat at constant FX), and a marked deterioration of underlying profitability (uEBITDA -8%/-6%; uOp Profit -12%/-9%). This is blamed on a run of more bookmaker-friendly sports results between Nov and Feb and multiple cancellations to high profile horse racing fixtures (14% of UK & Ire meetings) on account of the cold weather, which saw valuable online revenues slip 2%.

 

The weather may have passed but the effects have not, with PPB management forced to cut FY uEBITDA guidance. Nice try with the £500m buyback, but it doesn’t soften the blow. Even if things had improved by the time the mid-March Cheltenham Festival came round and more customer friendly results resumed in March.

 

Car insurer Hastings Group had already alerted markets to the cold snap’s insurance sector impact (26 Apr). Admiral is understandably being dragged 2% lower, but doesn’t update until August, however, esure (car, home travel insurance) results tomorrow have downside risk. In gambling, William Hill updates on 8 May (AGM & Trading update) and GVC (recently acquired Ladbrokes Coral) does so in May (date TBC). As always, remember to check the forecast. For the moment, the going remains heavy.

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