Ladbrokes' latest figures proved that the house doesn't always win. Its profits slumped after horrendous third-quarter trading, which suffered as freak football and racing results saw punters clean up. That meant that over the year its UK gross win margin slipped by a percentage point, to 15.9 per cent, with football margins a staggering 5.9 per cent lower than in 2008 after an unusual sequence of drawn games. And because the recession meant punters staked 6.2 per cent less, lower win margins meant UK retail gross win slumped 8 per cent to £710m
Even so, overall profits were better than analysts had expected, thanks mainly to an uptick in its fortunes in the fourth quarter, as results normalised. That good luck has continued into the new year and, despite the cold weather leading to horse-racing cancellations and football match postponements, the company said operating profit was ahead of last year, thanks to an £8.6m contribution from high rollers and benefits of earlier cost-cutting.
However, Ladbrokes seems to have hit a wall in terms of cost reduction, shaving a mere £5m off its UK Retail cost base to bring it down to £462m in 2009. Most of the savings came from a reduction in staff costs, and the group said that costs are expected to be flat this year on a shop-like-for-like basis as a result of a pay freeze. Net debt fell by nearly £300m, though, largely thanks to October's £265m rights issue, but also due to steady cash generation. And, while debt remains a key concern, newly announced plans to buy back current debt due to expire in 2012 and replace it with a new seven-year fixed-rate bond will improve the debt maturity profile.
However, the weakness of its eGaming business continues to stand out, as its operating profits fell 16 per cent year-on-year to £46m after customers reduced spending. Online net revenues were also hit by aggressive sportsbook competition, which Ladbrokes is hoping to overcome with the launch of a new sportsbook in January.
Broker Evolution Securities expects full-year pre-tax profits of £160m and EPS of 14.3p (from £170m and 19.4p in 2009).
LADBROKES (LAD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 149p | MARKET VALUE: | £1.34bn | |
| TOUCH: | 148-149p | 12-MONTH HIGH: | 213p | LOW: 115p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 8 | |
| NET ASSET VALUE: | * | NET DEBT: | £694m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005** | 0.920 | 240 | 10.5 | 207.6 |
| 2006** | 0.950 | 238 | 17.8 | 11.2 |
| 2007** | 1.23 | 345 | 39.8 | 11.8 |
| 2008** | 1.15 | 258 | 31.2 | 12.1 |
| 2009 | 1.03 | 174 | 19.5 | 2.98++ |
| % change | -10 | -32 | -38 | -75 |
*Negative equity shareholders funds **EPS & DPS adjusted for October 2009 rights issue ++Interim dividend only | ||||
