The head of its peer-to-peer investing platform says goodbye.
Betfair's (LSE: BET) share trading initiative, LMAX, aims to enable retail investors to trade shares peer-to-peer without a market maker taking a cut. The £1 billion FTSE 250 firm thus hopes to disrupt share trading in the same way as it revolutionised betting -- while making a profit along the way, of course.
And it might yet do so. But first it's going to have to find a new chief executive for LMAX, after it emerged today that the current incumbent -- former Morgan Stanley banking bigwig Robin Osmond -- has jumped ship.
Okay, when I say jumped ship, I should say he's left "to pursue other opportunities in the City". But with Betfair shares trading at less than £10 -- well below the £15.50 mark they hit shortly after their market debut last October -- his move may prompt some reevaluation of the 75%-owned subsidiary's prospects.
No winning hand
According to whispers from rivals, LMAX's initial market makers (a coterie of investment banks and trading houses) still provide the bulk of its liquidity. The range of tradeable securities is limited, too.
Getting a critical mass of investors on-board is obviously of key importance to any peer-to-peer service, since it relies on its users dealing with one another. Betfair's CEO David Yu says there will be an official update on LMAX's progress in June, when Betfair announces its full-year results.
The rest of Betfair seems to be doing pretty well, although for a company on a heady rating, 'pretty well' is arguably not quite good enough.
Last month's third-quarter results to the end of January saw revenue up 6.2% year-on-year to £77 million, with the workhorse Sports division seeing revenues rise 8.6% to £56.6 million. Its Poker offering was another story, however, with a 20% fall in revenue to just £5.2 million. The company blamed migration to a new service and said poker revenues were sequentially stable over the past 12 months.
March also saw Betfair shift its betting licensing arrangements to Gibraltar, which it says will benefit its bottom line to the tune of £10 million a year from the 2012 financial year.
Better odds than before
While analysts have been dialling back their enthusiasm for Betfair's full-year earnings, the company is still expected to report earnings per share of around 24p in the year to June, rising to upwards of 42p next year.
That makes for a pricey P/E of 42, falling to 24 for 2012. The forward PEG ratio, which attempts to evaluate how highly-priced the growth prospects are, is a much more attractive 0.3. The dividend is expected to double next year, too, although the 2012 yield is still barely 1%.
When it listed, I argued Betfair was over-priced for anyone seeking any sort of margin of safety on their investment. And while the £7 I thought I might buy at seemed wildly optimistic when the shares subsequently debuted at £13, my price target had been drawing closer in recent weeks.
Betfair's share price touched £8.30 last month, which given the progress since flotation and the nearness of a new financial year looks pretty decent value. I was distracted at time by other opportunities, but should the shares fall towards £9 again in the absence of any concrete bad news, I'd consider a punt.
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