Ladbrokes has enjoyed an encouraging start to their new financial year, despite their worst Cheltenham Festival in living memory. For the quarter as a whole, retail net revenues rose 4.1%, driven by favourable gross win margins (Cheltenham aside) and ongoing growth in machine income. Online net revenues rose by an underlying 38.4%, with online Sportsbook staking up 59.0% and the number of active sportsbook customers rising 27.8%. The shares reacted by rising 4%.
In recent weeks, Ladbrokes say that these encouraging customer metrics have continued, albeit the high win margins accompanying a run of favourable sporting results are starting to deter staking activity.
Ladbrokes are using their retail network to try and sign up customers to multichannel staking, and 43,000 new multichannel customers were recruited during the quarter. The retail estate saw 73 shops refurbished and Self Service Betting Terminals are now universal across the estate, leading to 172% growth in amounts staked through them. Online Sportsbook revenue growth was exceptional, at +59% and accompanied by Gaming net revenues up 27%, whilst strong recruitment of active customers in Australia, up 87% drove revenues up 38%.
Ladbroke described competitive behaviour at Cheltenham as abandoning bookmaking principles, exacerbated by favourites sweeping the board. In contrast, The Grand National saw a welcome 33/1 winner, levelling the book somewhat. For the remainder of the spring and summer, Ladbroke stand to lose £3m should Leicester City win the Premier League and much will depend on the outcome of the European Football Championships in Q2.
Overall, Ladbrokes say they are a little ahead of plan after the first quarter, in terms of customer metrics, but Cheltenham has knocked them a little. Results tend to even out over the medium term and the company are confident of an overall full year outcome in line with expectations. The proposed merger with Coral is still under review by the competition authorities and provisional findings are expected in mid-May.
Current trading at Ladbrokes is as encouraging, but in truth, a little bit of a sideshow in the short term. The real story here is whether the merger with Coral will be allowed, and for that news we must wait a while longer. If it does go through, the deal could be transformational for the group.
A merged Ladbroke/Coral will have a dominant retail position, even if many shops have to be sold off. We expect substantial cost saving will be possible because there will be vast areas of overlap and unnecessary duplication of functions across the combined business.
Current trading may be less important than the merger prospects, but in the longer term, it is Ladbrokes' ability to improve retail and online performance that will determine the success of the merger.
We are very encouraged by what we are seeing under Jim Mullen's leadership. Costs are coming out, as self-service betting terminals go into the stores. Ladbroke's machine income has held up far better than seen over at rival William Hill and the recovery in the online division, for a long time the group's Achilles heel, is more than welcome.
The strategy is to focus on the "recreational punter", in other words the still soft and malleable, unhardened gamblers out there. These people do not know what the right odds should be, so it is easier to build a fat win margin into the bookmakers' terms. In the long run, more and more punters will have to be migrated from Retail to Online staking, but at the moment, the group is managing to reverse some of the decline in retail staking.
The Coral merger, if it goes through, could create a huge opportunity for the group, if they can execute it properly. But it is hardly risk free; the enlarged group would be quite highly leveraged and still under-represented online, with an even larger Retail estate to be managed down over time. But let's face it, gambling was never a risk-free enterprise.
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