Take a bet on Ladbrokes Coral

Since 56 per cent of Ladbrokes Coral’s high street revenue comes from fixed-odds betting terminals, a cap on the amount punters could spend on them would be bad news. City analysts reckon that if the maximum stake took the extreme hit and was cut to £2 a play from the current £100 maximum, this would wipe around £450m from annual revenue and £100m per year off pre-tax profits. This could send EPS down as much as 40 per cent. But Interactive Investor’s head of equity strategy, Lee Wild, points out that these scenarios don't include benefits from the inevitable cost cutting that would follow the worst outcome.

Meanwhile, Ladbrokes' bosses say they are encouraged by the government’s commitment to an “evidence-based review, rather than a review based on politics or emotion”. They claim that, compared with other countries, levels of problem gambling in the UK are relatively low and have not increased since fixed-odds betting terminals were introduced to betting shops.

Besides management wants to sidestep these potential risks and focus on the five themes they’ve identified to drive growth in the group that was formed by the merger of Ladbrokes and Coral less than a year ago. These are: technology, product, marketing, multi-channel and international expansion.

All UK brands have now moved onto the same digital platform with the aim improving efficiency. Management reckons that it will make it is easer to offer new products since their teams can build a new offering once and then deploy it across multiple brands. In order to accelerate new product launches, back-office staff have all moved to one location in east London. Admittedly, the digital platform move came at the expense of new sportsbook products for the Ladbrokes website. But new products are on their way to coincide with the start of the 2017-18 football season, including Ladbrokes OddsBoost and Coral Build-My-Bet.

The marketing team is focusing on higher-value customers, or those prepared to spend more, which should help achieve a higher return on investment. Ladbrokes has cut its UK marketing spend from 33 per cent to 28 per cent of net revenue by investing less in those channels that were delivering high volumes of lower-value customers.

Marketing is also encouraging customers to use several products, so those used to popping into a betting office start to download the app onto their smartphone. Access to an online wallet will be launched in Ladbrokes' shops in the second half of the year. This means punters can use their online credit on self-service betting terminals and playing the fruit machines.

More gamblers are opting for online options. In the first half of 2017, for which results were reported last week, digital gaming revenue was up 11 per cent to £194m, due in part to customers choosing to go digital rather than visit a betting shop. Multi-channel gambling made up more than a third of revenue for Ladbrokes' website and half of Coral’s online sales. Meanwhile, revenue at betting shops fell 6 per cent to £703m as customers spent an average of 7 per cent less per stake. Overall, group revenue improved by 1 per cent to £1.2bn.

As the group nears the one-year mark of the merger, it has become an acquisition target itself. Last month, acquisition-driven online gambling company GVC (GVC) made a fresh approach with a takeover offer rumoured to be as much as £3.6bn. This is the second time GVC has made a move for Ladbrokes. It approached the company last year as it was in merger discussions with Coral.