BETFAIR floats - will you invest?

krizon

krizon

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Betfair has announced its £1bn flotation on the London Stock Exchange. Iain Dey/Sunday Times opines it is an astonishing British success story - founded by Andrew Black and Ed Wray on just £60,000 a decade ago, it now claims to be the biggest company of its kind in the world. It came into being when Black, a former IT consultant with the Ministry of Defence, had a 'eureka moment', realising that the odds on any event could be traded like shares on a stock exchange.

Betfair is one of those rare companies where the 'revolutionary' tag means something, said The Guardian. Before its arrival, old-fashioned bookies had a licence to print money. The question is whether it can continue its pace of growth. It points to two potentially huge money-spinners: the US betting market, which is liberalising rapidly, and its LMAX financial platform.

Neither route is a guaranteed winner, said The Independent, but it would be churlish to deny Betfair its day in the sun. That's certainly the hope of bankers at Goldman Sachs, who are managing the initial public offering. They can't afford another humiliating flop like Ocado.

Even without another flop, presumably Goldman Sachs can't afford any further humiliations following the release next week in the US of Wall Street: Money Never Sleeps (Oliver Stone)starring Michael Douglas in a reprise of his Gordon Gekko role. The securities firm at the centre of the action in the film is 'Churchill Schwartz', perhaps the least-disguised fictional name ever. Execs at Goldman are said to be unamused, but the similarities don't end there: the script is sprinkled with echoes of Goldman. Said The Economist, "if anyone is hoping the sequel will be less memorable than the original, it's surely the men who run Wall Street's most profitable, least popular, firm."

(Source: The Week)
 
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The average man in the street thinks a betting exchange is where connection of every fav that loses go to lay their horse. I dont have the figures in front of me but I think they have around 100,000 active customers. I wonder wht would happen if a few key accounts gave up or went to the wall with a run of adverse results.
 
Does anyone significant give up backing (as against laying) when they have a run of adverse results? Do they cancel their accounts if their last few major punts fail? I don't know the answer, but if it's 'no', then I would assume the same would be true of layers?
 
Think the shares will be fairly expensive anyway, possibly £12 a share or maybe more??? Anyway, the share price will go up or down depending on the what the boys in the financial market think will happen in the future ie will they keep increasing their market share/expansion etc...........and not a lot to do with racing.
 
As far as I know only 10 per cent of the total shareholding is being offered.I don't think the general public will get the chance to buy.
 
IF the shares are listed then the general public can buy them. They may have an institutional placement first at a pre-arranged price and then the shares float. My thesis in college was the underpricing of IPOs. Essentially, the share price of companies doing decent sized IPOs goes up because:

- the company does not want to screw the new investors as they may require them to invest again in the future so it is priced lower;
- the underwriter does not want to risk being left with the shares so will push for a lower rather than higher initial price
- depending on the size of the company, pension funds will need to amass a certain amount of the share. The bigger the IPO the more shares pension funds need to buy to keep their weightings in the "market" right

Given the size of this IPO, I'd be a buyer and hold for a month, then offload at any price. The share price can be volatile after a month or two and you could end up buying back in again at a price below IPO price. Or not. But if it did drop, I'd consider going in again. It's a strong brand.
 
I wish I had half a clue what you are on about. Are you saying you think Betfair shares are a buy?
 
Ive re-read your post. Is this any similar to eircom? Off loading after a month would have made a tidy profit.
 
Would you believe, I completed my thesis a few months before Eircom and my recommendation was to hold for a month and sell. Of course, what did I do.......held onto them as they went up. Classic mistake. My research found that once the initial rush is over the share price drops off quickly as trade normalises. At the end of the day, if a new company floats on the Irish stock market with the number one market capitalisation, any pension fund with an Irish exposure will normally buy shares. So if that company is 15% of the market and an Irish Fund has 100m in the Irish market, it will move up to 15m into that companys shares. So the price rises as the traders rush to buy the shares. Once they get their fill, the normal trading takes place and some of the speculators who have done some research will start to offload. But to who? That's why the share price begins to fall. Timing is everything.
 
Interesting stuff. I cant see many investors falling over themselves to buy shares in Betfair. It is a lot of red tape for them to expand. Just look at the millions wasted by the British bookmakers trying to dip their icey tenticals into the European market.
 
I don't know enough about the flotation price, the proportion of shares that will be floated or the financial strength and capital position of the company.

The business model (as is) is excellent, but I would be concerned around the potential for a large bookmaker to compete, as well as the potential for regulatory risk to eat into future profits.
 
Private individuals won’t be able to take part in the float. Institutions will get to buy in, the rest of us will have to wait for the shares to start trading.
Betfair has to make a lot of information publically available that it previously jealously guarded, which will open up opportunities for competition.
The issue details are thin. We don't know the IPO price or the timetable of events. So we can’t take a proper investment view on the stock.
 
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The only weakness with Betfair that I can see is that a lot of their medium/big customers are resentful of them and wouldn't mind moving for a while just to teach them a lesson but there is a fear that liquidity doesn't exist elsewhere.
For me it's a rolls royce product with a Ryanair customer service ethos.
 
Maybe I'm just a suspicious old fart, but I'm getting a mental image of a soap bubble getting larger and larger .....................................
 
I'd say you are badly wrong -Betfair makes millions in profits and is here to stay.The only question is how far over or under a billion do you value it.
 
Bar the Bull said:
It won't have the number one capitalisation. Or even near it. So pension funds won't be adding Betfair to their portfolio in any great size.
Click to expand...

At £1bn market cap, it falls outside the FTSE 100 of £1.7bn (that was 2009 so not sure if it changed since) and into the FTSE 250. So a pension fund with a diverse spread will be looking at it. Assuming it grows reasonably quickly over the next five years with new markets and a recovery in the economy, then it should be pushing the FTSE 100. I'll put it to you another way, Betfair will be worth the same size as Bank of Ireland and Allied Irish Banks together!!
 
Think Cantoris is absolutely right. I don't deal on the stock exchange anymore but I used to and used to "stag" what are now called IPOs. If I was still dealing, my instructions to my broker would be to sell if the shares went up by 5% after the IPO, unless you have good reason to think the shares will go up a bit more, but get out well before the institutions have bought their requirements.
So, for what tis worth, buy the shares but get out quickly. would be my advice. There are too many longer term imponderables, like their ability to expand into new markets, how quickly that may happen and the threat in the UK of a new taxation situation. Sounds like a good opportunity to make a short - very short term - profit, but perhaps best not to think of the long term unless you have money that can lie idle for a while.

richard
 
Richard, the only thing I would add is that in order to try to get the upside from the short hold, you need to be willing to hold long term. Suppose the markets tank the day of the IPO and the share price falls rather than rises, simply due to the macro market. In that case, you would want to be comfortable holding the stock long term, if ya had to.
 
Cantoris, that is a very good point if I may say so. Which kinda suggests that if buying Betfair you need to use money that you can afford to put away for a longish time and which you aren't going to need in a hurry.

richard
 
Or alternatively, you just want to be buying the share because you like the company rather than making a fast buck. If you make the buck, great. If not and you end up holding it for a few months or years you really don't want to take out the cert one day and think to yourself "was I on drugs when I bought them"!!
 
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