By Daniel Stewart & Co

- Sportingbet has reported a strong set of Q3 results, with solid trading so far in May 2010. Q3 (three-months to 30 April 2010) Net Gaming Revenue (NGR) increased by 30% YoY (+27% at constant currency), driven by strong European sports and casino growth, and a significant Australian sportsbook increase.

- European sports NGR increased by 21% YoY (£29.2m vs £24.1m), with strong wagering (notably in-running, now representing 63% of wagers by value) and a small contraction in margin (9.0% vs 9.3%).

- Casino was up by 17% to £11.6m (good cross-sell, especially into new flash, non-download games) and poker, as expected, remains relatively weak (-10% YoY to £4.5m).

- The star performer was Australia, with NGR up by 167% due to a major turnaround in margin (horseracing-led, above average Q3 2010 5.7% NGR margin against below average 2.6% in Q3 2009) and solid wagering growth of 19% YoY.

- Sportingbet’s Q3 EBITDA grew by 19% YoY, with EBITA up by 18% to £12.0m (+32% at constant currency). This leaves our FY10E EBITA estimate of £34.9m well covered (87%), although the Q4 performance will be highly dependent upon the World Cup (11 June to 11 July 2010) that should see massive volume but at a fairly high-risk margin. With May trading ‘solid’ and assuming a solid World Cup margin, our forecasts look at risk on the upside.

- Elsewhere, the group has stated that it has ceased taking wagers from French customers (as at 14 May 2010 when French online gambling legislation was enacted), in line with peer William Hill (announced today).

- Sportingbet has indicated that it should receive sports, horseracing and poker licenses in early 2011 (long and comprehensive application process) and, to this end, has already entered into marketing partnerships with local media brands ‘Le Monde’ and ‘L’Express’.

- The gap between closing and re-entering the French market could result in an estimated loss of 5-8% of group EBITA in FY11E, with the current runrate of France representing 3.5% of gross win, with casino just 0.9% (no casino return in 2011).

- Overall, this is a strong set of results and trading in its core regions of Spain and Greece remains robust (NGR +8% and flat respectively in Q3). With the shares trading at 10.0x FY10E and just 8.7x FY11E, as well as having net cash of £30.3m and a 2.5% FY10E dividend yield, we remain Buyers with an unchanged 100p price target.