Shares in Ladbrokes (LAD) have probably performed worse than new chief executive Jim Mullen had hoped when he raised the stakes back in the summer. The former William Hill (WMH) chief operating officer pledged to take drastic action to reverse the Ladbrokes' fortunes, and was candid about the plan holding back profitability in the short term. Markets punished the stock, sending the shares down some 18 per cent since the overhaul was announced. But the retribution could be over if the reaction to the company's Q3 update is anything to go by - shares rose 9 per cent in spite of a near-57 per cent drop in quarterly cash profits to £14.3m.
Revenues were down 0.7 per cent for the group, compared with the previous year, which was boosted by the football World Cup. If the positive impact of the football tournament is taken out, sales actually rose 2 per cent.
The standout performer was the company's digital offering, a key plank of Mr Mullen's strategy. Sales rose 6 per cent compared with Q3 last year, even including the World Cup, and mobile now represents 69 per cent of its sportsbook revenues. Innovations such as a 'single wallet', which allow users to pool money in one place, but bet across the site on different activities, have proved popular, as has its 'cash out' option, which allows gamblers to close bets early if things are going their way.
The amount staked on self-service betting terminals also rose 5 per cent. Ladbrokes aims to have 6,500 such machines by the end of Q4.
Panmure Gordon says...
Hold. The fact the company is still on track for its full-year forecasts was a good thing as it normally misses and does so by a margin. The fact it had such a tough quarter - which was widely expected - but is still on track probably contributed to what could be classed a relief rally. There are signs of life in the business though with active users up 6 per cent, or 18 per cent if adjusted for the World Cup last year. This is healthy as it signals a reversal of losing market share, something which has happened for the past 5-6 years. Its Australian business is also doing remarkably well, given it gained share there organically rather than through acquisition. But we're still on hold as if its merger with Gala Coral does not go through Ladbrokes could be in trouble.
Cenkos Securities says...
Buy. We moved from a sell to a buy a couple of months ago having taken the view the organic growth strategy was sufficient enough regardless of the potential merger. We like what Jim Mullen is doing as it is grounded in simplicity. The sentiment towards the company has been negative for a number of months if not years and the turnaround plan has its sceptics but this was the first evidence it has got off to a solid start. The company showed good growth in most of its key lines, and its business in Australia - which it built with little capital - is doing well. There is also the potential for latent demand there is regulation becomes more permissive. The fact the company reiterated full-year guidance was important as it is the first time in a while.
