Betting giant Ladbrokes Coral (LCL) reports a 7% rise in first half operating profit to £158.3m. The result is at the top end of prior guidance while it was also delivered in half that has so far failed to provide ‘the sporting sparkle of 2016 in terms of shock and surprises’ that pulls in optimistic punters.
Ladbrokes Coral’s strong digital performance offset a weaker UK retail outturn in the six months to 30 June. The £2.25bn cap also announces a higher-than-expected half year dividend, doubled to 2p.
This payout hike demonstrates the highly cash generative nature of the business and confidence in the opportunities afforded by 2016’s Ladbrokes-Coral merger.
Yet the shares trade 0.8p lower at 116.8p as investors fret over the regulatory uncertainties facing the quoted gaming sector’s players.
The industry has seen a wave of consolidation as companies come together to cushion the blows from rising taxation and stricter regulation, Paddy Power and Betfair also having joined forces.
Encouragingly, Ladbrokes Coral says the merger integration process is ‘progressing very well’ and synergies are now expected to be £150m per annum by 2019, which is more than double the original estimate.
ONLINE WINNINGS
‘Ladbrokes Coral continues to make good operational and financial progress,’ enthuses CEO Jim Mullen. ‘We entered the year with ambitious targets for the first half to substantially complete the integration of our teams and migrate UK Digital to a single platform. We delivered on both fronts and at the same time kept the business moving forward.’
Mullen’s merged charge has been strengthening its online operation as a possible UK government crackdown on betting terminals in high street shops weighs on prospects for its traditional retail business.
Accordingly, a strong digital performance saw net revenue shoot up 17%, driven by the UK, Italy and ‘market leading growth in Australia’. Sportsbook stakes were ahead in all brands, helped by the release of new product in Australia and improved player yields in the UK.
Since the first half numbers were pre-announced at the end of July, investors’ focus is on trading in the third quarter to date. Encouragingly, in the seven weeks to 20 August, total group revenue is up 6% year-on-year with digital revenues 15% ahead. Sports gross win margins were ahead in both the UK and Italy, albeit behind in Australia.
BETTER TOGETHER
The second half of the year should see the result of the government’s triennial review of the gambling industry, including rules governing fixed-odd betting terminals (FOTBs), which accounted for a third of Ladbrokes Coral’s group revenue in the half.
With increased regulation of such machines looking inevitable, investors are understandably nervous about Ladbrokes Coral’s profit prospects.
Neil Wilson, Senior Market Analyst at ETX Capital, explains: ‘The outlook remains very cloudy as we await the outcome of the triennial review and an expected clampdown on fixed odds betting terminals.
The government review is likely to see the maximum stake on these machines reduced from £100 to around £10-20, but it depends on the amount of pressure Labour can exert on the government now the Conservatives have lost their majority - Labour has pushed for a cap of £2. A £2 limit would amount to a serious problem for bookies and probably hasn’t been fully reflected in the share price declines of the last 12 months.
But will the government cave in? Tax revenues from bookies are high and there are plenty of jobs tied up with the shops (as the industry is keen to stress). The government may not wish to give up the tax money at this time, which might result in a more modest reduction in maximum stakes.'
