It’s not that long ago Ladbrokes PLC (LON:LAD) was viewed as the “selling plater” of the bookmaking sector and William Hill PLC (LOM:WMH) the thoroughbred.
Now it seems William Hill has stumbled and is in danger of unseating its rider while Ladbrokes, soon to merge with Gala Coral, seems to be getting into its stride.
This morning Ladbrokes, which just over a year ago slashed its dividend as it prepared to “reset the business”, released a strong third quarter update.
The once troublesome Digital arm, which prompted profit warnings for the group back in 2013 and which was cited as a major reason why former chief executive Richard Glynn stood down last year, is now really rocking.
The online Sportsbook saw net revenue rise 47.9% year-on-year, while gaming (bingo, poker, etc.) revenue rose 23.7%.
This more than compensated for the one-paced UK retail estate, where over-the-counter bets were down 4.3% on a year earlier, though the retail chain’s net revenue still rose 1.9%, thanks to punters’ inability to keep away from the fixed odds betting terminals – once memorably dubbed the “crack cocaine” of gambling.
“Overall, this is a strong statement from Ladbrokes with Q3 trading ahead of our second half assumptions, especially in digital where we forecast 20% NGR [net gaming revenue] growth and Australia, where we forecast 40% NGR growth, with retail broadly consistent,” said Shore Capital Markets, which rates the shares a ‘buy’.
A Gala occasion
“The Ladbrokes investment case is now about its merger with Coral,” Shore’s Greg Johnson asserts.
Yesterday the merger cleared a hurdle as the sale of 359 shops for £55.5mln was announced, which will keep the Competition and Markets Authority (CMA) sweet.
Johnson thinks the continued momentum at Ladbrokes and Coral is encouraging, and reckons that this, along with merger synergies, could see underlying earnings (EBITDA) reach £500mln in 2018, with scope for further out-performance compared to its peers.
Liberum, in contrast, is not convinced Ladbrokes is worth backing.
“Yesterday's news of the agreement to sell the required number of shops to satisfy the CMA requirements on the merger with Coral brought certainty if not 'value' to the table. Meanwhile, Q3s released today reflect some of the positive operational momentum witnessed during H1 with Digital revenues ahead nearly 50%. However, we still see a valuation below the current share price and once the merger with Coral completes, we would view the largest retail bookmaker in the UK as very exposed to structural and regulatory challenges,” the broker said, as it reiterated its recommendation to sell.
Shares in Ladbrokes currently trade at around 140p. Shore thinks fair value is around 180p and Liberum has a target price of 120p, so you pays your money – and the bookie wins, as usual!
Busted flush
Meanwhile, William Hill has been jilted by potential merger partner Amaya Inc (TSE:AYA), owner of the Pokerstars online gaming site.
Earlier this year, the company rebuffed an approach from 888 Holdings (LON:888) and The Rank Group PLC (LON:RNK) to combine their operations, but the general view seems to be that William Hill needs to get in bed with someone that has a strong digital offering in order to put some va-va-voom in its performance. Amaya could have been that "someone".
Today’s announcement was not unexpected, however, given William Hill’s largest shareholder had come out against the proposed marriage.
On the plus side, the bookie has not only reiterated earnings before interest and tax guidance for 2016 but said it expects the outcome to be at the top end of the £260mln-£280mln range after an encouraging start to the second half of the year.
“Fundamentally we believe the shares are trading around fair value but equally, there may be other possible business combinations which could unlock the value of synergy benefits,” Liberum said.
Finding the right business combination, however, is proving to be troublesome for William Hill’s management.