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OPINION

The future for Ladbrokes?

The future for Ladbrokes?
October 5, 2012
The future for Ladbrokes?
IC TIP: Buy

The problem for Ladbrokes is that it is currently locked into the online gaming equivalent of an arms race with William Hill in the battle to attract new customers. Once signed up, punters can be cross-sold profitable products such as online casino games, which makes up for the initial spending on promotional bets. The spending gap has started to grow noticeably between the two to the extent that Hill is expected to outspend Ladbrokes by almost three-to-one by 2015, according to JPMorgan analysts.

Trying to match William Hill's marketing spend from its current base would require Ladbrokes to increase its marketing budget by an estimated extra £32m, largely wiping out the projected earnings from its online division in 2013. Improving the online offering highlights a strategic problem that the company has yet to solve; without an equivalent partnership to William Hill's joint venture with Playtech (PTEC), Ladbrokes must undertake the upgrade without specific technology experience.

The positive news for Ladbrokes, and one that could attract bidders in the future, is that the company's retail estate, driven by gaming machines in shops, is doing surprisingly well given the economic backdrop. At the last half-year results, over-the-counter revenues were growing by 2.4 per cent a year.

That begs the question of whether company's brand, spread of shops and reputation are worth more than the hard slog of building up a digital business from scratch.