Betfair drops 4.5% as Cyprus restricts online betting

The British company said Cyprus contributed around 4% of group revenues last year, and around us$ 13.9 million of profit. Its shares have lost us$ 0.52 to us$ 1.11 on the news, but it is taking advice on the legality of the move. It said: The company believes the legislation contains serious flaws and, in certain areas, is inconsistent with European Union law.

Betfair will be taking all necessary steps to reduce the impact on profitability through both legal action and cost management. Analyst Michael Campbell at broker Daniel Stewart said he believed Cyprus also planned to introduce a new betting tax of 13% of gross profits.

This is another blow to Betfair's exchange betting business. The stock trades on around 6.6 times 2012 consensus EBITDA which appears reasonably priced, though our biggest concern remains whether other markets will, like Cyprus, ban exchange betting which will hamper the business's ability to grow outside of its core UK market.

Karl Burns at Shore Capital said full year forecasts were likely to be reduced after the news: “We retain our hold recommendation, highlighting that whilst we believe the exchange is a unique and highly cash generative business model, in addition to reporting strong underlying revenue growth recently, we continue to harbour concerns over the pace of exchange regulation in Europe, with Europe around 40% of group revenue, whilst comparatives will toughen through the year.”