Bookmaker Paddy Power today reported pre-tax profits of €52.5m for the first half of this year (H1 2010) - - an increase of 54% from the same period a year earlier. The company said it benefited from an "exceptional" World Cup, which generated four times as much revenue as the previous two international football tournaments. Underlying earnings per share rose by 31% to 82.2 cent and the interim dividend was raisedby 28% to 25 cent per share.

Commenting on the results Patrick Kennedy, Chief Executive, Paddy Power plc, said: "It has been a great first half for Paddy Power, marking significant strategic and financial progress. The Group's strengths - product innovation, better value for customers and brand differentiation - position us well for further growth.  We have significantly strengthened our online market position, ending the period with greater scale, more customers and enhanced capabilities, as well as substantially higher profits, compared to a year previously.  At the same time, we continued to expand internationally, whilst increasing market share in retail.

Since 30 June, our online businesses and UK Retail have continued to grow strongly while our Irish Retail and Telephone channels have performed solidly.  Accordingly, we expect to exceed the current market consensus forecast for the year."

Results detail

Goodbody's Killian Murphy commented: "This strong performance is driven by significant growth in core online business (ex Australia), which reported 41% yoy player growth. This, coupled with a gross win margin at the top end of its guided range (7-8%), due to favourable sporting results, generated an Operating Profit of €29m (+33% yoy and 9% higher than anticipated). The UK Retail business was also stronger than anticipated (Operating Profit of €3m vs. our expectation of €0.5m).

The variance being higher lfl OTC turnover (6% vs. 0%) and a stronger performance from machines (+€1m), in part due to the roll out of new ‘Storm’ cabinets. This strong momentum has continued into H210. The Irish retail estate was broadly in-line with our expectations (€9.0m vs. €9.4m), reflecting a lower than anticipated gross win margin, due to horse-racing results. Sportsbet (the Australian business) reported Operating Profit 17.3% higher than we were expecting. This was driven by an 84% yoy increase in its player base and a higher than expected gross win margin (7.1% vs. 6.5%). This rise in gross win margin is more due to structural factors (changing product mix & mass market effect) rather than favourable sporting results, a factor we highlighted at the time of acquisition.

We will be adjusting our future expectations to reflect this dynamic. In the outlook statement, management highlights that due to the investment made in H1 the strong growth in UK Retail and the Online business has continued into the second half of the year. The Irish Retail estate and Telephone business continue to perform solidly. As a result, management expects FY10 EPS growth of up to 30% yoy, to circa 155c. This is ahead of our expectation of 24% growth yoy and significantly ahead of consensus expectation of 21% yoy. Due to the continuation of the strong momentum within the core business in H1 and the strong out-performance in Sportsbet, we expect to be increasing our FY10 EPS forecast by 3% and therefore retain our Buy recommendation."