Paddy Power Betfair's underlying prospects are rosy despite a thumping first half loss

The gambling group reported an "underlying profit". There are reasons to be sceptical when companies resort to using that term, but not in this case

Why didn't irreverent Paddy Power call itself Betty Power after Betfair deal? (Rex Features)

Gambling leviathan Paddy Power Betfair - it’s still beyond me why this most irreverent of companies didn’t call itself Betty Power when it was created - slumped into the red in the first half of its financial year.

The combination of Betfair and Paddy Power reported a thumping £49.3m pre tax loss, due in no small part to the £195m racked up in merger costs.

Ah, but, the company said. We made underlying profits of £181m. That’s the sort of number that ought to delight anyone who took a bet on the shares.

The trouble is that there is an underlying truth when companies talk about “underlying earnings”. You have to treat them with a degree of scepticism.

They are supposed to be what the business is making when all sorts of “one off” costs are stripped out. Companies are in theory supposed to exclude one off benefits too. But they aren’t always so keen to talk about underlying earnings when they don’t have a lot of nasties to deal with. Funny that.

Banks have, in the past, been the poster children for the problem with quoting these numbers. Some - but not all - of them have in the past excluded the impact of fines, for example, even when they happen with such regularity that its sophistry to leave them out.

Then there is the issue of write downs. These are paper losses. They occur if, for example, the value of company B decreases after being bought by company A. When the carrying value of B is reduced on the books of company A it has to be declared as a loss. Because it is a loss. Even if no cash is involved, the value of shareholders' investment in company B has still declined over time.

But but but, says company A's PR man, it's a one off. The underlying business is going great guns. Yeah, right.

Still, companies writing off their errors through the use of underlying earnings does at least give people like me some thing to write about and helps to keep us in work. So perhaps there’s a silver lining to these sort of shenanigans At least for me.

With Betty Power, however, you can feel confident that this business is going to be a winner at the track and elsewhere and that its real earnings are going to be such that it shouldn’t need to bother quoting “underlying” earnings for very much longer.