I believe the benefits of scale enjoyed by Paddy Power Betfair (LSE: PPB) sets it up nicely for pukka profits growth in the years ahead. During 2016 the gambling specialist saw its revenues rise 18%, to £1.55bn, a result that helped underlying pre-tax profit jump 44% to £327m.
Stakes across the group’s sportsbook rose 24% last year, pushing revenues from Paddy Power’s sporting operations up 19% to £1.2bn. And elsewhere, gaming revenues at the company jumped 14% to £353m.
While regulation remains a problem for the likes of Paddy Power, I reckon the business can depend on its vast scale and sprawling global presence to mitigate the impact of higher taxes on long-term earnings expansion. The company has betting shops across the UK, Ireland, the US and Australia, and an extensive online footprint across Europe.
And the group has plenty of financial firepower to embark on M&A action to give earnings an additional shot in the arm. Cash and cash equivalents rang in at a hefty £249.9m as of December.
The City expects earnings at Paddy Power to rise a modest 2% in 2017 before sparking back into life again next year, a predicted 13% advance is pencilled-in for 2018.
A prospective P/E ratio of 21.1 times sits above a corresponding average of 15 times for Paddy Power’s FTSE 100 peers.
But I believe the firm’s leading proposition in structurally-growing markets — a position boosted by its sector-leading technologies and terrific brand strength — makes it an exceptional growth stock worthy of this slight premium.
No time to nap
The number crunchers are less optimistic about the near-term earnings picture over at easyHotel (LSE: EZH). However, the accommodation giant is expected to endure a 50% bottom-line slip in the year to September 2017.
Still, easyHotel is expected to get back into the groove with a 71% rise in fiscal 2018. And the firm is in great shape to achieve this forecast if recent trading numbers are anything to go by.
easyHotel advised that “trading for the five months [to February] was slightly above the board’s expectations,” the company noting that its owned hotels continue to outperform those of its competitors.
The company saw like-for-like revenues for its owned sites rising 19% from a year earlier, and easyHotel is expanding across Europe to keep sales here on a northwards path.
The hotelier opened new-look hotels in Amsterdam, Birmingham and Brussels during the period, all of which have traded “exceptionally strongly,” the firm noted. And easyHotel currently has 1,748 rooms in the development pipeline straddling its owned and franchise divisions.
easyHotel’s huge forward P/E ratio of 122.1 times may be too rich for many investors. But those keeping the pursestrings firmly closed may eventually regret not piling-in as the firm’s aggressive site-opening scheme could drive revenues firmly higher, particularly if tough economic conditions boost the popularity of value operators like this.
