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Ladbrokes: underdogs boost profits

Ladbrokes have this morning released first half results ahead of management expectations, benefiting from good staking and favourable sporting results, especially the unpredictable Premier League and European Championships football. The share price rose by over 4% this morning.

Headline revenue is up 13.1% to £661.8m, with operating profit for the half of £52.3m, up from £38.9m last year.

Although Ladbrokes CEO Jim Mullen acknowledged that a series of bookie-friendly results in the period has helped boost profits in the first half, he was keen to stress that he expects result patterns and margins to normalise in the future. He was particularly encouraged to see staking remaining high despite the results running against the punters in the period.

In light of the performance in the first half, Ladbrokes have raised their expectations slightly for the full year. Bloomberg consensus is for revenues of £1.26bn, with operating profit of £101.8m.

The interim dividend is held at 1p per share.

George Salmon, Equity Analyst at Hargreaves Lansdown:

“They say the bookies always win, and this time Ladbrokes have reported good results. Aside from paying out over £3m to bold punters who backed Leicester at stratospheric odds, the sporting trend has generally been in the bookies favour this half. Portugal winning the European Championships, with a goal from a Swansea reserve team player against the well-fancied home nation France was a fitting end to an unpredictable season.

Focusing marketing on the recreational customer has also helped to buck the decline in over the counter revenues, with the UK seeing a 1.3% growth in staking. The casual gambler, whether betting online or in shops, is less likely to win, and less likely to mind when they don’t.

Aside from current trading, the main news item for Ladbrokes remains the merger with Coral. This is likely to go ahead once the Competition and Markets Authority’s requirement for the sale of 350-400 shops has been satisfied.

The enlarged group will be the clear market leader on the UK’s high street, while the international businesses should dovetail nicely. With cost synergies of £65m per annum mooted by the two parties, the impact on the bottom line is significant. Therefore, the Coral merger could create a huge opportunity for the group, provided they can execute it properly.

Potential pitfalls are the debt that the enlarged group would have, and the tricky task of managing the ongoing transition from the retail estate to online. But let's face it, gambling was never a risk-free enterprise.”


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