Get lost, the board of Betfair told the private equity barons of CVC when they were waving takeover offers of 880p a share and then 950p two years ago. It was an excellent decision. The share price is now £21.05. Thursday’s rise was a remarkable 18% as third-quarter numbers came in a full furlong ahead of City forecasts.
There doesn’t seem to have been any strategic magic behind Betfair’s improvement. Chief executive Breon Corcoran, who in 2013 was newly arrived from Paddy Power, has cut costs, concentrated overseas adventures on markets where regulators are friendly and introduced a fixed-odds sportsbook alongside Betfair’s pioneering betting exchange.
In other words, he’s got on with the job of giving punters what they want, and dropped the flim-flam about Betfair really being a technology company that might one day also revolutionise financial markets. There was too much guff of that sort at flotation (at £13) in 2010. Betfair was always a gambling company with horse racing and sport as its heartbeat. Do it right and the customers come and the cash flows.
Betfair’s triumph is best illustrated by its market value against Ladbrokes, which a generation ago was regarded as having the strongest brand in the betting game. Ladbrokes, even with the guaranteed winnings that come by polluting its shops with hideous electronic roulette wheels, is worth £1.06bn. Betfair, founded in 1999 and with no shops, is valued at £1.95bn.
Chairman Gerald Corbett led the resistance against CVC, insisting the offers “fundamentally undervalued” Betfair. Corcoran gave admirable assitance by making it obvious that he didn’t much fancy working for the private equity crew. Splendid work.
Aviva moving in the right direction
“It would be wrong to assume that our turnaround is nearing completion as we have further to travel than the distance we have come,” says Mark Wilson, Aviva’s fast-talking, cost-cutting Kiwi chief executive.
Thank goodness for that, most long-standing Aviva shareholders will say. They can remember when the dividend was 33p a share – it was as recently as 2008. One crisis later, under the hapless Andrew Moss, it was 26p. Wilson, on arrival two years ago, took the payment down to 15p as the true depth of Aviva’s capital position and corporate dysfunctionality, became apparent.
Now the dividend is back to 18p after Wilson lifted the final by 30%. That’s the right direction at last, and 30% is a fair reflection of the speed at which he has encouraged Aviva to cut costs, improve cash flow and generate more capital. But he’s right: the restoration job is not even close to completion.
Wilson, one assumes, wanted to counter suggestions of complacency because Aviva is taking on a second project by buying Friends Life for £5.7bn. On announcement last November, scepticism was rife. Why get deeper into closed life policies, territory where reforming chancellors can undermine the appeal of annuities overnight?
Wilson, though, has convinced the doubters and shareholder approval looks a formality. From a cash point of view, the numbers seem to add up; Friends produces plenty of the stuff and Aviva’s dividend prospects should improve further. And Aviva Investors, until now an also-ran, gets another £120bn to manage.
Doubt remains over management stretch. Even after a good kick, Aviva looks far from being a simple business; and, if Wilson wants to upgrade technology and get customers to buy more products, that’s a multi-year task. But on current form, and on yesterday’s numbers, he’s earned to right to throw Friends Life into the mixing bowl.
Crude calculation
Here’s how the price of oil affects the price of your airline ticket. When the oil price soars, the airlines introduce fuel surcharges to reflect exceptional circumstances. When it plunges, Willie Walsh, boss of British Airways parent IAG, says this:
“We will continue to offer customers great value for money, but that does not mean we will automatically pass on all the benefit we get because some of that return must go to shareholders who have supported us through tougher times and a period of significant investment in new aircraft.”
Walsh is paid by his shareholders (and paid well: he got £6.4m last year as Iberia started to come good) so don’t expect charity. But, please, Mr Walsh, drop the uncharacteristic circumlocution. It’s simple: you intend to charge as much as the market will bear.
