Having been under sustained pressure over 2018 on the back of regulatory changes, is there anything in today’s announcement to suggest that the shares are a decent contrarian buy? Yes and no.

A “challenging year”

Despite a “challenging year” for all bookmakers, CEO Peter Jackson said that the £4.9bn cap had “regained its mojo“.

Revenue rose 9% at constant currency to £1.87bn in 2018 with the company seeing 5% growth online and an increase in market share in the UK.

That said, reported pre-tax profit came in at £219m — down 11% on that achieved in 2017. Earnings per share were also 6% lower due to investment across the pond. 

On the topic of growth opportunities in the US, Mr Jackson remarked that the decision to overturn the federal ban on sports betting last May had “the potential to be the most significant development to occur within the sector since the advent of online betting” and justified the company’s speedy swoop for the FanDuel brand.  

As far as 2019 was concerned, the Dublin-based business stated that trading had started in line with expectations and that it was seeing “good momentum” across its divisions, despite the inevitability of further regulatory pressure.

In perhaps the most bizarre part of today’s report, PPB also informed the market of its desire to change its name to Flutter Entertainment to reflect the “increased diversity” of its brands and operations. What an awful name!

Contrarian buy?

After losing over 30% of its value since shares peaked last May, one might suspect the shares would now be changing hands at a very reasonable price.

Not exactly. Trading on a little over 18 times expected earnings, the stock still looks pretty expensive compared to rivals and the market as a whole.

Having maintained its 200p full-year dividend, a trailing yield of 3.3% certainly isn’t awful, but there are companies in the FTSE 100 with far more tempting payouts. 

With further investment likely and net debt rising fast, I can’t see this situation changing anytime soon. 

Better price?

Of course, Paddy Power isn’t the only company wanting a piece of the action in the US. 

Shares in fellow FTSE 100 constituent GVC (LSE: GVC) rose strongly yesterday after the company released some very decent full-year numbers. Pro forma net gaming revenue came in 9% ahead of last year (at £3.57bn) with pro forma underlying EBITDA also rising 13% (to £755.3m).

Hailing a “transformational year” following its acquisition of Ladbrokes Coral, CEO Kenneth Alexander stated that effective marketing and a bumper World Cup had meant GVC had performed “ahead of expectations and materially ahead of the market”. Now the world’s biggest sports-betting and gaming operator, he believes the company is well-placed to deal with the forthcoming regulatory hurdle and tax increases in 2019. 

Recent momentum certainly shows no sign of slowing with the firm reporting an 11% rise in net gaming revenue since the start of the year to 24 February compared to over the same period in 2018. 

Taking into account its lower valuation (12 times earnings), higher dividend yield (4.6%) and US joint-venture with MGM Resorts, I’d probably bet on GVC over Paddy Power Betfair.

That said, neither compares to my personal favourite in the sector.

The post Is this out-of-favour FTSE 100 growth stock now a great contrarian buy? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GVC Holdings and Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Thanks partly to a successful World Cup in Russia, revenue rose 12% at constant currency to £483m over the trading period, which included a 15% rise in online revenue in Europe. Unfortunately, the same performance wasn’t replicated across the firm’s retail estate with revenue here falling 1% in the UK, 6% in Ireland and 4% overall. 

Further afield, revenue declined 2% in Australia due to sporting results going against the bookmaker, despite a 25% rise in stakes. Across the pond, however, revenue rose 22% with the company stating that it was “encouraged” by the demand for regulated products despite it still being very early in the evolution of US sports betting.

Commenting on today’s numbers, CEO Peter Jackson stated that management was heartened with the “substantial progress” made by the company against its strategic priorities. According to him, Paddy Power Betfair’s scale and strong financial position mean that it is well placed to respond to forthcoming higher betting taxes and limits on fixed odds betting terminals and to take advantage of growth opportunities within the industry.

Despite earnings before interest, tax, depreciation and amortisation (EBITDA) falling 15% at constant currency to £101m over the three months due to taxes and acquisition costs, the company also saw fit to revise the lower end of its guidance for the full year, predicting that this would now be in the range of £465m-£480m rather than the previous £460m-£480m. Whether this makes the shares worth buying is debateable.

On 16 times earnings, Paddy Power Betfair is one of the more expensive gambling firms on the market. At 3%, the yield is also distinctly average given the cash returns on offer at other from other FTSE 100-listed firms.

While its size and growth potential can’t be dismissed, I’d be more inclined to look for value in the gambling industry right now, especially given the forthcoming regulatory changes. With William Hill’s finances continuing to look somewhat shaky, online gaming solutions provider 888 Holdings (LSE:888) would be my preferred bet. 

Better odds?

True, 888’s share price hasn’t exactly been on scintillating form of late. Priced at 325p back in May, the very same stock had fallen 46% to a low of 175p towards the end of last month on the back of a fairly uninspiring set of interim numbers in September (which revealed revenue and adjusted earnings per share growth of just 1% and 2% respectively).

With management stating that the outlook for FY profit was “in line with market expectations“, however, I’m tempted to say that the drop looks overdone. It’s also worth remembering that 888’s lack of high street presence means that it neatly sidesteps the aforementioned controversy surrounding fixed odds betting terminals. 

If analyst estimates are on the money, the shares now trade on 13 times earnings for the current financial year, arguably making the firm better value compared to the FTSE 100 betting behemoth. Those investing for dividends may also find the forecast 6.2% yield attractive.

Add to this 888’s solid net cash position (equivalent to roughly 20% of the value of the entire company) and high, if somewhat erratic, returns on capital and I suspect this could be one outsider worth backing.

The post Tempted by Paddy Power Betfair? I think this hated dividend stock offers far better value appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m going to weigh up the pros and cons of investing in the enterprise as it returns to growth.

Rising losses 

At the beginning of August, William Hill reported a mixed set of half-year results. Adjusted pretax profit declined 13% to £96.3m. But in many ways, this figure is misleading. The company also reported an exceptional charge of £916m, which pushed it into a pretax loss of £820m. This large write off included £883m associated with the UK government’s decision to cut the maximum bet for fixed-odds betting terminals. 

Of the £916m exceptional charge, £17.2m was associated with the group’s expansion into the US and additional restructuring costs. After stripping out all of these costs, adjusted operating profit on existing operations increased 1%, and revenues rose 3%.

International expansion 

William Hill’s push into the US excites me because this is a market with tremendous potential, as it’s still relatively undeveloped. Today, the company announced it had reached an agreement with Eldorado Resorts to become the exclusive partner “in the provision of digital and land-based sports betting services as well as online gaming.” As a result of this deal, the firm now has a presence in “13 states where sports betting is either legal or sports betting bills are tabled.” 

The blossoming US market should allow William Hill to continue to grow despite problems at home. Estimates vary, but it’s rumoured that $150bn is wagered on sports in the underground market each year across the country. This indicates the size of the opportunity for the gambling group and its peers could be many billions of dollars.

I reckon the market isn’t taking this opportunity seriously enough. Shares in William Hill currently trade at a forward P/E of just 10.4 and yield 5.4%, implying investors are not expecting any fireworks from the business. With this being the case, now could be the time to buy.

Too expensive? 

When it comes to growth, I think William Hill could be a better investment than its larger peer Paddy Power Betfair (LSE: PPB).

The main reason why I reckon Paddy Power’s returns in the years ahead will disappoint is valuation. The stock looks expensive. Shares in the betting company are valued at 15.6 times forward earnings, which makes them 56% more costly than William Hill. This premium earnings multiple leaves no room for error if the business’s growth stumbles.

The company is following William Hill into the US. It acquired renowned daily fantasy sports operator FanDuel in May and is planning a significant expansion across the continent as sports betting becomes more accepted.

In the first half of 2018, the group’s US revenue lept 21% to $79m. Further acquisitions are planned to build Paddy Power’s presence within the region, adding to its existing offering. With cash on the balance sheet of £149m at the end of the last reported period, the firm certainly has the resources to chase new deals.

The post Why I’d dump this FTSE 100 growth champion to buy its FTSE 250 peer appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Footsie stock was last dealing 6% lower on the day and at levels not seen since August. The gambling giant has now lost a whopping 23% of its value since the beginning of 2018. But rather than being bearish myself, I reckon this represents a great opportunity for savvy investors to grab a slice of a blue-chip star.

Down but not out

Investors have taken fright today after Paddy Power Betfair announced that revenues dropped 2% during the three months to March, to £408m, and that underlying operating profit plunged 12% to £80m.

It commented that weakness in horseracing was a major contributor to the drop in turnover and caused a 1% fall in sport revenues. More specifically the FTSE 100 firm cited “the high level of weather-related cancellations” which caused a 14% drop in the number of races run in the UK and Ireland during January-March, a sharp acceleration from the 4% fall reported a year earlier.

The ‘gee-gees’ were not the only problem in the first quarter. The business was also adversely affected by the string of “bookmaker friendly” football results from November to February which dented punter appetite to continue placing bets.

While disappointing, I do not believe today’s results should be prompting investors to cash out. As my Foolish colleague Harvey Jones pointed out quite recently, the huge investment the company is making in foreign markets may be costly but this is providing some brilliant earnings-growing possibilities for the years ahead.

In Australia and the US, revenues rose 6% and 23% respectively during Q1, illustrating the brilliant prospects in far-flung territories. Meanwhile, Paddy Power Betfair’s new European integrated platform has significantly improved the customer experience while also boosting the number of cross-selling opportunities for its products, giving its sales outlook another shot in the arm.

A growth dividend great

City forecasts may be downgraded on the back of today’s fresh trading update, but at the time of writing, estimated growth of 6% and 7% for 2018 and 2019 respectively was pencilled in.

As a result dividends are expected to keep driving higher at a terrific rate too. The firm — which in 2017 hiked the full-year payout 21% year-on-year to 200p per share — is expected to raise the reward again, to 211p this year and to 226p in the following period.

These forecasts yield a plump 3.1% and 3.3% respectively, but this is not the only reason for income chasers to rejoice. Indeed, anticipated dividends for 2018 and 2019 are covered 2 times by projected earnings, bang on the accepted safety marker and meaning that share pickers can take confidence in these estimates being met.

In more positive news today, Paddy Power Betfair announced plans to return £500m of cash to shareholders over the next 12 to 18 months, most likely in the form of share buybacks and starting with £200m in the near future. This comes as no surprise given that the Footsie company is something of a cash machine (net cash leapt to £330m as of March from £244m just three months earlier), and should give dividend chasers extra peace of mind.

A slightly-elevated forward P/E ratio of 16.3 times is a small price to latch onto the Dublin firm’s impressive long-term growth prospects, in my opinion.

The post I’d still buy FTSE 100 growth dividend star Paddy Power Betfair despite this news appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Power up

The good news is that Paddy Power Betfair group posted a net profit in 2017 of £217.7, reversing a £5.7m loss in 2016. Revenues jumped 13% to £1.75bn, operating profit climbed 19% to £392m, and earnings per share (EPS) rose 20% to 398p.

Chief executive Peter Jackson was bullish, talking up the “fastest sports book app in the market” and lining up new products ahead of this summer’s World Cup. The group is planning to boost investment in international markets, and is prepared for regulatory and fiscal changes expected in the UK, Australia and US.

Losing the losers

So why are investors so downbeat? Paddy Power Betfair was helped by favourable sports results in the fourth quarter, but there is a downside to winning. “This sustained period of bookmaker friendly results has, however, significantly affected customer activity, including reduced re-cycling of customer winnings,” the group admitted.

World Cup winner

When I examined the stock in November it was on a winning streak, but I urged caution due to its volatile performance and heady valuation. It traded at 25 times earnings then but today’s forward valuation has fallen to a more amenable 19 times. EPS are forecast to grow 13% this year and 6% in 2019.

Dividend policy is progressive with a 21% in the year’s total dividend to 200p per share, although the forecast yield is just 2.4%. Paddy Power Betfair’s numbers are slowly moving back into line and the World Cup is coming.

Quite the Lookers

Motor retail and aftersales service group Lookers (LSE: LOOK) also reported on Wednesday after a tough couple of years that has seen its share price fall a hefty 40%. It has been punished by falling car sales across the market, as hard-pressed consumers retrench. In November, Royston Wild suggested giving it a wide berth. Today the market is more positive, with the stock up 1.3% at time of writing.

Today’s 2017 annual results are headlined “Solid underlying growth in a challenging market, with increased dividend and share buyback plan announced”. Highlights include a 12% rise in total new car turnover, or 3% on a like-for-like basis, despite a reduction in overall market volumes. Total used car turnover rose 19% or 13% like-for-like basis, against strong comparatives.

Hit the road

There is continued demand for aftersales while Lookers has helped its own case by investing in its “multi-channel customer experience, especially the website, driving significant increases in visitor and enquiry levels”.

Chief executive Andy Bruce hailed the group’s resilience, and strong momentum in used cars and aftersales despite a 5% dip in the overall new car market. March order books are in line with expectations. All of which looks promising to me, given the stock is trading at a forward valuation of just 6.2 times earnings and yields a forecast 4.4%, covered 3.7 times. EPS forecasts look patchy, as do UK economic prospects, but Lookers is motoring again.

The post Here’s why I’d buy Paddy Power Betfair plc and this bargain turnaround stock appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Wanna bet?

It is slipping back today following publication of its trading update for the four months to 29 October. The share price is down 2% despite a small rise in group revenues and strong growth in its digital and European divisions, with its UK retail business continuing to decline. 

Group net revenue rose 3%, or 2% at constant currency, following a 2% drop in the second quarter. The standout figure was a 17% rise in European retail net revenue, or 12% at constant currency. Digital net revenue also lifted, rising 12%, with Sportsbook net revenue up a hefty 18% and Gaming net revenue up 6%. This was offset by a 1% drop in UK retail net revenues.

What are the odds?

Ladbrokes Coral CEO Jim Mullen hailed a positive trading performance, with solid delivery on key operational and financial targets including the swift integration of people, operations and platforms following the recent merger. He added that the Ladbrokes brand in Australia and the Eurobet brand in Italy should continue to post “very strong revenue growth”. 

The regulatory review on fixed-odds betting terminals remains a threat. Analysts reckon £20 or anything above that will be good news, while £2 could trigger hundreds of shop closures and a share price shock. 

City forecasts remain bullish, however. After four years of negative earnings per share (EPS) growth, analysts are pencilling in 76% in 2017 and 34% in 2018. The yield is forecast to rise from today’s 2.2% (with healthy cover of 2.2) to a juicy 4.8% over the same period. Ultimately, dividends are the things make you rich.

Ladbrokes Coral looks cheap at its forecast valuation of 11.1 times earnings, but beware that fixed odds decision. We should find out whether the group is a winner or loser on 23 January.

Power play

Rival Paddy Power Betfair (LSE: PPB) is also on a winning streak, its share price up 18% in the last three months. I have been sceptical about the stock before, and remain unconvinced today, due to its combination of hefty valuation and poor share price performance. It still trades at around 25 times earnings, despite being 5% lower than a year ago.

However, it is growing earnings faster than Ladbrokes Coral, with latest figures showing Q3 revenues up 9% to £440m, driven by 11% growth in sports revenue.

Crackdown

Stakes growth has been strong even without a major football tournament and next year it should migrate its customers to a new integrated platform, which should improve efficiency and the customer proposition. Paddy Power also enjoys optimistic EPS forecasts of 15% and 14% in 2017 and 2018 respectively, when the yield should rise to 2.5%.

The group has far less to fear from the crack cocaine crackdown due to its greater sports, digital and international exposure, with revenue from betting shops totalling just £85m. Outgoing CEO Breon Corcoran has even backed a clampdown and called for the stake to be cut to £10, which shows confidence. Paddy Power could prove a solid bet.

The post These 2 racy growth stocks could make you stunningly rich appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There’s no doubt the volume of cigarettes being smoked in developed countries is in decline, but the company has proven adept at actually growing revenue through this period by taking market share, increasing prices and recently, acquiring smaller competitors. Over the past 10 years this has resulted in 4%+ compound annual revenue growth and 10%+ EPS growth.

On top of wringing out more revenue from traditional cigarettes, BATS is also targeting £5bn in annual sales from new heated tobacco and vaping products by 2022. The company estimates it already has the highest global share of next-generation products outside the US and predicts £1bn in annual sales by the end of 2018, so this looks to be an achievable target.

Then there is the recent £41.7bn acquisition of the remaining portion of Reynolds American it didn’t already own. This has made the combined business number two by market share in the world’s second most profitable market, the US, and the largest listed tobacco group worldwide. This will not only grow revenues by giving BATS exposure to this huge market, but also comes with the bevy of market-leading next-generation tobacco products Reynolds was working on.

While the Reynolds deal has stretched BATS’s balance sheet, its dividends remain safely covered by earnings and the company’s prodigious cash flow means it has retained investment grade status for its new over-subscribed bond offering in the US. Given these attributes, I think the 3.6% dividend yield and solid growth prospects make its valuation of less than 18 times forward earnings a relative bargain, especially as it has had much higher historic valuations.

Worth taking a punt on? 

Another highly profitable company in a highly regulated industry that’s stolen a march on competitors through acquisitions is Paddy Power Betfair (LSE: PPB). This recently-combined business is performing very well with Q3 revenue up 8% year-on-year (y/y) in constant currency terms to £440m and underlying EBITDA up 9% to £121m.

This growth was led by the group’s strong share of the sports betting market and double-digit growth from its smaller businesses in Australia and the US. Management retained a sunny outlook for the rest of the year and guided for £450m-£465m in full year EBITDA, well ahead of last year’s £400m figure.

The proposed regulatory crackdown on fixed betting terminals could mean a hit for the group, but it’s in a much better position than rivals to absorb it. In Q3, revenue from betting shops as a whole was only £85m and the outgoing CEO felt confident enough in his company’s ability to weather the strom that he came out in favour of a clampdown on the machines and cutting the maximum stake from its current £100 to less than £10.

However, interested investors should be aware that its greater growth potential due to high exposure to fast growing online betting means Paddy Power Betfair is much more highly valued than rivals at 19.8 times forward earnings.  

The post One FTSE 100 growth and income stock I’d buy today appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at two stocks that I believe offer potential for both capital growth and dividend growth over the long term.

Paddy Power Betfair

Shares in betting giant Paddy Power Betfair (LSE: PPB) have endured a rough ride over the last year, falling over 20%.

Concerns relating to a government crackdown on fixed-odds betting and TV advertising have hit sentiment across the entire betting sector. And news yesterday that CEO Breon Corcoran will step down after 16 years with the group, was not received well by the market. The stock has fallen further this morning, after releasing half-year results that missed analysts’ expectations.

After such a significant decline, could the stock now be offering long-term value?

While today’s half-year results were certainly not as impressive as last year’s, the numbers don’t look all that bad in my view. Indeed, revenue for the half year rose 9% to £827m and underlying EBITDA increased 21% to £220m, with the EBITDA margin rising 3 percentage points to 27%. The company stated: “We believe that the investments we are making, as well as our scale, market positions and leading capabilities, position us well for sustainable profitable growth.”

At the current share price of 7,175p, Paddy Power Betfair now trades on a forward-looking P/E ratio of 17.9, which doesn’t look excessive for a company forecast to increase revenue and earnings per share this year by 17% and 21% respectively. The fall in the share price has also boosted the dividend yield to 2.1%, and with the company forecast to pay out 201p for FY2017, the forward-looking yield has risen to a healthy 2.8%, covered twice by earnings.

With that in mind, while sentiment at Paddy Power Betfair is poor at present, I believe value could be emerging here for those with a long-term mindset.

Experian

Another stock that has pulled back in recent months is credit check specialist Experian (LSE: EXP). After rising from just over 1,000p in September 2015 to over 1,700p in May this year, the stock has since pulled back approximately 10% to now trade at 1,530p. At that price, it is starting to look interesting, in my opinion.

Experian owns credit information on hundreds of millions of individuals and businesses, and sells this data to banks and other financial firms that require an understanding of the credit risk of potential clients. The company has been building its database for over 20 years now, and therefore enjoys a dominant position in a market that has high barriers to entry. The business is diversified geographically, with operations in the UK, Europe, North America, Latin America, the Middle East and Africa and Asia.

City analysts forecast earnings per share of 95 cents for FY2018, placing the stock on a forward-looking P/E of 20.9 at present. While that’s clearly not a bargain valuation, I don’t think it’s an unreasonable valuation for Experian, given the company’s ‘Buffett-style’ competitive advantage and dominance within its sector.

A dividend yield of 2.1% is also on offer, and the company has a good recent track record of dividend growth, lifting the payout from 32 cents to 41.5 cents per share over the last five years. With that in mind, I believe the 10% pull-back in Experian’s share price may have created an attractive entry point into the stock.

The post Two high-growth large-caps I’d buy today appeared first on The Twelfth Magpie.

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• The ISA strategy that could quietly turn small sums into life-changing wealth

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Experian and Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Billion dollar potential?

Small-cap pharmaceutical firm ImmuPharma (LSE: IMM) hopes to develop a new treatment for lupus. The company’s Lupuzor product is currently in a phase III trial, with results expected early in 2018.

ImmuPharma believes that Lupuzor could have an addressable market “with the potential for multi-billion dollar sales”, based on the demand for, and pricing of, existing treatments.

If the Phase III trial is successful, ImmuPharma will hope to find a larger partner to fund the commercial development of Lupuzor. If this happens, shareholders could enjoy a big payday.

However, the reality is that many of these experimental medicines don’t work. Although ImmuPharma has backing from fund managers at both Legal & General and Aviva, these managers’ shareholdings are likely to account for perhaps 1% of their portfolios. If things go badly, the resulting loss will be small relative to the value of the portfolio.

What next?

The firm has no revenue and had net cash of just £1.5m at the end of 2016. Its market cap of £72m is mostly based on the hoped-for success of the Lupuzor trial. If the trial isn’t successful, I’d expect the share price to collapse.

In my opinion, ImmuPharma is a binary bet at this point. If things go well, the shares could rise. But if the trial isn’t a success, then the stock could easily lose 50% of its value. If you hold the shares, I believe you need to ask yourself whether you’d be comfortable with a loss of this size.

If not, then it’s worth remembering that ImmuPharma has risen by 50% over the last six months. Now might be a good time to take some money off the table.

A good company at the wrong price?

Choosing good companies to invest in isn’t always enough to guarantee a profit. It’s important also to make sure that the price you pay for the stock is low enough to make further gains likely.

In the case of bookmaker Paddy Power Betfair (LSE: PPB), I’m not sure that’s true. This does appear to be a good company. The combined group’s revenue rose by 18% to £1,551m last year, while its underlying operating profit was 44% higher, at £330m.

Underlying earnings per share are expected to rise by 20% to 402p this year and by a further 12% to 450p in 2018. The problem is that most of this good news already appears to be reflected in Paddy Power Betfair’s share price.

The stock trades on a trailing P/E of 24, with a 2017 forecast P/E of 20. The prospective dividend yield of just 2.5% is below average for this sector. Although dividend growth has averaged 13% since 2011, if earnings growth slows as expected, then I’d expect dividend growth to slow too.

Paddy Power Betfair’s share price has fallen by 10% over the last year. Given the outlook for slowing earnings growth, I think the shares could fall further before bottoming out. I’d steer clear for now.

The post 2 dangerous stocks I’d consider selling today appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Roland Head owns shares of Aviva. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

You’ve got the Power

A total of 26 FTSE 100 stocks have increased their dividend every year since the financial crisis in 2007, according to online platform AJ Bell. Paddy Power Betfair (LSE: PPB) is one of them, and the impact on your total returns simply cannot be understated. Over the last decade, its share price is up 290.8%, against just 12.8% on the index as a whole. That would be good enough on its own, but once you include re-invested dividends, it becomes nothing short of spectacular.

It has delivered an impressive 16% of annual compound dividend growth taking the total return to an incredible 659.4% with dividends reinvested. The average total return on the FTSE 100 over that period was 63.9%. This is barnstorming outperformance.

Place your bets

Ten years of consecutive dividend growth is what makes Paddy Power Betfair such a winner. The question is, where does it go next? The last year has been disappointing, with the share price falling 7%, hit by concerns of a government crackdown on fixed-odds betting and TV advertising, as gambling addictions rise.

Yet this multi-brand, multi-channel, multi-jurisdictional business remains in winning form, recently reporting a 35% rise in underlying earnings and making a fat dividend payout. Paddy Power does look expensive at 25 times earnings, but last time I’d looked it was 30. Earnings per share (EPS) look sluggish at 2% this year but should fly 13% in 2018. Remember, dividend growth is favourite to win this race.

Smell the coffee

Hotel and restaurant company Whitbread (LSE: WTB) is another big dividend winner. Its share price is up 118.9% over the past decade, but it has been turbocharged by its annual compound dividend growth rate of 10.1%. This takes the total return to 179.4%, not quite at Paddy Power’s heady levels, but worth a celebratory drink anyway.

I tipped Whitbread four years ago, arguing that is strong financial position, big brands, mainstream target market, Asia growth targets and robust management gave it plenty of depth and body. It quickly recovered from the Brexit shock, as spending on eating out remained resilient, although consumer activity has been slowing lately.

Premier income play

Tourist spending has held up in London, helped by the weak pound, but could take a hit with sterling now strengthening. Whitbread, which owns Costa Coffee and Premier Inn, could see its hotel business soften if a large chunk of the City shifts to the continent after Brexit, although the future on this front is unclear.

Whitbread’s recent Q3 update showed sales up 8.3%, or 1.9% on a like-for-like basis for the financial year-to-date. Forecast EPS growth of 6% and 8% over the next two years looks juicy, and although the yield is a so-so 2.4% it is well covered and management is committed to growth. Whitbread looks solid at a forecast 16.1 times earnings, but Paddy Power is the racier bet.

The post 2 FTSE 100 heroes with 10 years of constant dividend growth appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.