Monday 15 April 2013

Ladbrokes, losing the race

Ladbrokes today updated the market on its first quarter performance. A red flag could be seen before anything was read as the announcement stated "Early release of 1st quarter results".  Early release?  Could spell trouble and it did.
Ladbrokes had always planned for a reduction in group operating profit during the quarter due to known taxation and cost headwinds in UK Retail and the expected H2 weighting of growth in Digital revenues.

This reduction has however been exacerbated by softer trading than expected in Q1, particularly in the second part of the quarter, during which we saw a number of one off factors including; a significant reduction in profit from Cheltenham, lower revenues from high value gaming customers and a proportionately higher impact from horseracing cancellations.

When coupled with the revised 2013 outlook for our Digital business following our deal with Playtech we now expect group operating profit for the year to be at the bottom of the existing market range, in light of which the Q1 IMS has been released today.
http://www.digitallook.com/news/rns/20826495-10046/LAD-Early_Release_of_1st_Quarter_Results_html?ac=,&username=,

So not good and the share price, down around 8% today reflects that. However, the middle paragraph above makes you wonder why Ladbrokes felt the need to get their announcement in early, especially as rival William Hill is due to report on Friday.


If Ladbrokes is seeing "softer trading" then so should William Hill if this is due to a wider, challenging market conditions. If William Hill reports that it has done well, then Ladbrokes really is a distance behind it in the race to be the UK's best and biggest bookie. As for Cheltenham results showing a significant reduction in profit, again the same should be true of William Hill. Cheltenham is usually a major money earning opportunity for the bookies, especially if many outsiders win, but having just had a look at the results it wasn't as if it was a big year for favorites. However, there were some early warning signs, but you might only spot this of you follow horse racing (which I don't but a web search threw up this story).
The bookies will be trembling as punters chase another pot of gold on the second day of this year’s Cheltenham Festival.
Trebles for trainer Willie Mullins and jockey Ruby Walsh left Ladbrokes declaring that bookmakers had lost millions in one of their worst days ever at the Festival.
http://metro.co.uk/2013/03/12/the-tipster-sprinter-sacre-to-pile-misery-on-bookies-at-cheltenham-3539006/

Difficult to see how William Hill would avoid this.

Lower revenues from high rollers and race meeting cancellations? Can William Hill do better with their high rollers? As for race meetings being cancelled due to weather, all the bookies face the same situation.

So, things aren't looking good right now for William Hill and its statement on Friday. By then any bad news may already be in the price as the share is down around 2% today and 15% since 1st March, but even after that fall the company is on a generous P/E of around 14 compared to Ladbrokes 11 and a dividend yield of 2.7% whereas Ladbrokes offers 4.3%. Assuming the above result is a blip and Ladbrokes is still heading in the right direction as the company claims, long term holders shouldn't be worried too much although it still has a lot to do it would seem to convince the market that recovery is on track.

While William Hill comes across as having been the better managed of the two companies over the last few years as Ladbrokes has lagged behind, this weeks results show that while bookies always tend to win in the long term, every now and then the punters get the upper hand. Right now in the market, long sided punters in these stocks might want to pause to see where things are going.

4 comments:

  1. Update from Digital Look tips round up:

    A poor run of luck lately at Ladbrokes? The economy? Those seem like poor explanations for the company's lacklustre performance. In 2015 the bookmaker is expected to generate the same operating profits as in 2010, just over £200m, versus a 25% increase for rival William Hill. Thus the fact that it is trading at a significant discount to some of its peers, at 12 times forecast earnings against 14 times for William Hill. Might bankers smell an M&A opportunity here? Possibly, however, "buying Ladbrokes right now looks a little like putting your money on Aurora Encore at 66-1," says the FT's Lex column.

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  2. Not into horse racing but trying to remember where I heard/read this. Gist was a number of Irish winners affected the profits with the Cheltenham results down by aprox 16% but they will make up for it across the year and are up around 12% on the Grand National.

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    1. The bookies will always try to ensure the odds are in their favour so that they make a profit, but clearly there is enough uncertainty which just occasionally works for the punters. When it goes well for the punters as it did at this year's Cheltenham the bookies take a hit and for those that are stock market quoted it doesn't look good in their updated results. That's why on Friday it will be interesting to see what William Hill report.

      However, as the market likes to see nice consistent results from companies, this occasional blip in takings for quoted bookmakers is basically going to be an occupational hazard for anyone holding the shares. Occasionally punters get lucky, or the weather means cancellations so you have to take the rough with the smooth if you are going to buy into this sector.

      On fundamentals right now William Hill looks more like a growth company while Ladbrokes is falling into the value category. Friday will tell us more if things are going to stay that way. Williamm Hill's chart is set up nicely to go either way.

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  3. This is more bad news for Ladbrokes if on Friday this comes in from William Hill.

    "BETTING giant William Hill is set to report first-quarter earnings of £344.1 million, thanks to expected double-digit revenue growth from its online division and betting shops.

    The bookmaker is expected to post strong results on Friday, as it had a good start to the year. The first seven weeks saw online and betting shop revenues rise 30 per cent and 13 per cent respectively. Analysts expect both divisions to post double-digit growth for the quarter as a whole."

    http://www.express.co.uk/finance/city/391762/William-Hill-beats-the-odds-with-profits

    The first seven weeks wouldn't include Cheltenham as that meeting was in March. We wait to see if there was a Cheltenham effect on William Hill.

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