Bet on Paddy Power Betfair at Cheltenham

Date

3/15/2016 6:40:28 AM

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(MENAFN- ProactiveInvestors - UK) Trader Talk Sat

A rebound for oil prices helped global equities extend recent gains as Brent crude jumped back above $40 a barrel for the first time in three months. Wall Street marked the seventh anniversary of the US equity bull market by pushing the S&P 500 up over 10% from a two-year intraday low on 11th February.

A more encouraging tone to US economic data releases helped underpin the improved sentiment with Friday's solid non-farm payrolls report exceeding expectations. US employers added more jobs than forecast in February while January's figures were revised upward although average earnings fell last month. The numbers helped soothe fears of an outright US recession while not proving strong enough to induce another imminent hike in interest rates.

Oil continued to play a dominant role in driving market action as Brent leapt to a three month peak marking a 50% rally from the 12-year intraday low of $27.10 in January. Fears of a supply glut appear to have temporarily taken a back seat with the oil markets focus shifting from pessimism over ample inventories to optimism over declining US production.

Commodity prices also enjoyed a strong recovery after an upbeat speech from China's Premier Li Keqiang at the annual National People's Congress. In Beijing Mr Li announced a growth target range for 2016 of between 6.5% and 7.0% considerably higher than expectations sending copper and iron ore prices sharply higher.

The speech caused many to question the authenticity of Chinese growth data especially after trade data showed a 25.4% drop in exports last month from a year earlier the biggest monthly decline since 2009 while imports slid 13.8%. Meanwhile seasonal factors including China's lunar New Year being one week later this year weakened the numbers - the extent of the decline remains a concern.

Several analysts said the recent rise in oil and commodity prices was not born out of any structural changes indicating that the rally would go into reverse unless there was a sustained improvement in demand led by China.

The International Monetary Fund warned of a growing risk of global 'economic derailment' stating policymakers needed to take urgent action to respond to slowing growth. Right on cue the European Central Bank responded with a series of stimulus measures designed to fuel growth and inflation across the region. The aggressive moves were generally well received by analysts although stocks initially fell as the desperation highlights the fragile underlying state of the European economy.

The ECB announced a 10 basis point cut to its deposit rate to minus 0.40% a 5bp reduction in its benchmark refinancing rate to zero and a lowering of the rate on its marginal lending facility to 0.25% from 0.30%. It said it would raise its monthly asset purchases by 20 billion to 80 billion from April and would add investment grade corporate bonds to the list of assets that are eligible for it to buy. The central bank also unveiled a series of four targeted longer-term refinancing operations each with a maturity of four years.

Technical analysis of the FTSE 100 shows some consolidation after a good run for the index. Resistance from the downward sloping 200-day moving average at 6215 provided a ceiling sending the blue-chips back to initial support at 6030. The next move is now critical as a break above 6215 could trigger the next leg higher or a move below 6000 may prompt a retest of 5600. The oscillators offer little insight although the MACD histogram has just stepped into negative territory suggesting momentum is fading.

In conclusion markets were acutely oversold earlier this year as recession fears stole the headlines so the snap-back rally witnessed over the past month is not entirely surprising. My concern however lies with the rate of recent gains largely driven by a substantial yet fragile recovery in commodity prices.

Many investors are starting to question whether the unconventional central bank policies are doing more harm than good to the workings of financial markets which combined with several major global indices encountering technical resistance could see markets consolidate lower over the coming weeks. The air is proving thin for the S&P 500 above 2000 the FTSE 100 struggles above 6200 and Germany's Dax is contained below an important technical level around 9900.

As a horse racing enthusiast I am excited about the Cheltenham Festival on 13th March a prestigious National Hunt race meeting with prize money second only to the Grand National. History suggests it marks the start of a period where shares in bookmakers typically thrive with Aintree and the Euro 2016 football championships to follow.

Following completion of a merger at the start of February the world's largest-listed gambling company is Paddy Power Betfair (Epic: PPB) the unoriginal name given to the amalgamation of Irish bookmaker Paddy Power and the betting exchange Betfair. This week the 8 billion company entered the prestigious FTSE 100 index of Britain's biggest companies.

The merger comes as stricter regulation has forced gambling companies to expand and increase their scale to cope with these pressures. As a result there has been a surge in deal-making with Ladbrokes agreeing a merger with Coral and GVC taking over Bwin.Party.

The creation of Paddy Power Betfair has enviable scale and when the pair announced the tie-up they highlighted that there was almost no overlap in their customers with just 3% of regular UK punters that bet online placing wagers with both businesses. It will also benefit from wide geographical diversity with customers in more than 100 countries and power to invest.

Breon Corcoran the merged firm's chief executive spent a decade working at Paddy Power before taking the helm at Betfair in 2011 so he knows both businesses and is well-placed to drive the integration of the companies. Mr Corcoran said: 'The deal created one of the world's largest online betting companies with enlarged scale enhanced capability and distinctive complementary brands.

Results this week revealed both Paddy Power and Betfair registered strong revenue growth in the lead up to their merger. Paddy Power showed revenue growth of 24% to 1094 million and a 10% jump in operating profit to 180 million while Betfair witnessed revenues expanding by 21% to 138 million and earnings rising 10% to 26 million. The announcement represents Betfair's third-quarter results for the three months ending January 31st 2016 and Paddy Power's annual numbers so the companies are of a similar size.

It is too early to get consensus forecasts for the combined group but these results show that both businesses entered the merger on the back of strong trading momentum and according to Mr Corcoran the integration of the two companies is progressing well and revenue growth momentum has continued further.

A rebound for oil prices helped global equities extend recent gains as Brent crude jumped back above $40 a barrel for the first time in three months. Wall Street marked the seventh anniversary of the US equity bull market by pushing the S&P 500 up over 10% from a two-year intraday low on 11th February.

A more encouraging tone to US economic data releases helped underpin the improved sentiment with Friday's solid non-farm payrolls report exceeding expectations. US employers added more jobs than forecast in February while January's figures were revised upward although average earnings fell last month. The numbers helped soothe fears of an outright US recession while not proving strong enough to induce another imminent hike in interest rates.

Oil continued to play a dominant role in driving market action as Brent leapt to a three month peak marking a 50% rally from the 12-year intraday low of $27.10 in January. Fears of a supply glut appear to have temporarily taken a back seat with the oil markets focus shifting from pessimism over ample inventories to optimism over declining US production.

Commodity prices also enjoyed a strong recovery after an upbeat speech from China's Premier Li Keqiang at the annual National People's Congress. In Beijing Mr Li announced a growth target range for 2016 of between 6.5% and 7.0% considerably higher than expectations sending copper and iron ore prices sharply higher.

The speech caused many to question the authenticity of Chinese growth data especially after trade data showed a 25.4% drop in exports last month from a year earlier the biggest monthly decline since 2009 while imports slid 13.8%. Meanwhile seasonal factors including China's lunar New Year being one week later this year weakened the numbers - the extent of the decline remains a concern.

Several analysts said the recent rise in oil and commodity prices was not born out of any structural changes indicating that the rally would go into reverse unless there was a sustained improvement in demand led by China.

The International Monetary Fund warned of a growing risk of global 'economic derailment' stating policymakers needed to take urgent action to respond to slowing growth. Right on cue the European Central Bank responded with a series of stimulus measures designed to fuel growth and inflation across the region. The aggressive moves were generally well received by analysts although stocks initially fell as the desperation highlights the fragile underlying state of the European economy.

The ECB announced a 10 basis point cut to its deposit rate to minus 0.40% a 5bp reduction in its benchmark refinancing rate to zero and a lowering of the rate on its marginal lending facility to 0.25% from 0.30%. It said it would raise its monthly asset purchases by 20 billion to 80 billion from April and would add investment grade corporate bonds to the list of assets that are eligible for it to buy. The central bank also unveiled a series of four targeted longer-term refinancing operations each with a maturity of four years.

Technical analysis of the FTSE 100 shows some consolidation after a good run for the index. Resistance from the downward sloping 200-day moving average at 6215 provided a ceiling sending the blue-chips back to initial support at 6030. The next move is now critical as a break above 6215 could trigger the next leg higher or a move below 6000 may prompt a retest of 5600. The oscillators offer little insight although the MACD histogram has just stepped into negative territory suggesting momentum is fading.

In conclusion markets were acutely oversold earlier this year as recession fears stole the headlines so the snap-back rally witnessed over the past month is not entirely surprising. My concern however lies with the rate of recent gains largely driven by a substantial yet fragile recovery in commodity prices.

Many investors are starting to question whether the unconventional central bank policies are doing more harm than good to the workings of financial markets which combined with several major global indices encountering technical resistance could see markets consolidate lower over the coming weeks. The air is proving thin for the S&P 500 above 2000 the FTSE 100 struggles above 6200 and Germany's Dax is contained below an important technical level around 9900.

As a horse racing enthusiast I am excited about the Cheltenham Festival on 13th March a prestigious National Hunt race meeting with prize money second only to the Grand National. History suggests it marks the start of a period where shares in bookmakers typically thrive with Aintree and the Euro 2016 football championships to follow.

Following completion of a merger at the start of February the world's largest-listed gambling company is Paddy Power Betfair (Epic: PPB) the unoriginal name given to the amalgamation of Irish bookmaker Paddy Power and the betting exchange Betfair. This week the 8 billion company entered the prestigious FTSE 100 index of Britain's biggest companies.

The merger comes as stricter regulation has forced gambling companies to expand and increase their scale to cope with these pressures. As a result there has been a surge in deal-making with Ladbrokes agreeing a merger with Coral and GVC taking over Bwin.Party.

The creation of Paddy Power Betfair has enviable scale and when the pair announced the tie-up they highlighted that there was almost no overlap in their customers with just 3% of regular UK punters that bet online placing wagers with both businesses. It will also benefit from wide geographical diversity with customers in more than 100 countries and power to invest.

Breon Corcoran the merged firm's chief executive spent a decade working at Paddy Power before taking the helm at Betfair in 2011 so he knows both businesses and is well-placed to drive the integration of the companies. Mr Corcoran said: 'The deal created one of the world's largest online betting companies with enlarged scale enhanced capability and distinctive complementary brands.

Results this week revealed both Paddy Power and Betfair registered strong revenue growth in the lead up to their merger. Paddy Power showed revenue growth of 24% to 1094 million and a 10% jump in operating profit to 180 million while Betfair witnessed revenues expanding by 21% to 138 million and earnings rising 10% to 26 million. The announcement represents Betfair's third-quarter results for the three months ending January 31st 2016 and Paddy Power's annual numbers so the companies are of a similar size.

It is too early to get consensus forecasts for the combined group but these results show that both businesses entered the merger on the back of strong trading momentum and according to Mr Corcoran the integration of the two companies is progressing well and revenue growth momentum has continued further.