Ladbrokes upbeat despite retail doubts
Ladbrokes upbeat despite retail doubts
Ladbrokes followed up the news of the Competition and Markets Authority (CMA)-mandated sale of the parcel of 359 shops with a positive third-quarter trading update but it was accompanied by suggestions it had ignored the opportunity to sell to a challenger brand.
Alongside the disappointment of the analysts yesterday at the price Ladbrokes and Coral received for the excess shops - £55m from Betfred for 322 outlets and £0.5m from Stan James for the rump 37 shops – there was also sniping from failed bidder Boylesports.
Boylesports said in a statement it was “disappointed” that the shops would be going to existing retail competitors of Ladbrokes Coral and not a challenger brand such as itself. Boylesports does not have a retail presence on the UK mainland though it does operate online.
Boylesports said this was despite the fact it had bid a higher amount which was also fully funded. It added that it was “fully cognisant” of the changing political and regulatory UK landscape.
The statement went on: “BoyleSports believes the decision not to allow a challenger brand onto the UK high street is bad for retail consumers who would have benefited from the keen pricing and excellent service already available to our existing Irish retail customers and to online customers in Ireland and the UK.”
The company said it will be communicating its concerns to the CMA and was “reviewing its options on what other steps may be open to us”.
The regulatory situation was referenced by Ladbrokes today when it said it expected the Triennial Review to begin in the “near future” and that it “looked forward to supporting the government”. It added that it was hoping that government would to stick to the principle of evidence-based policy with regard to any proposals.
However, the price paid by Betfred and Stan James would suggest a different, more negative, outcome from the review is expected. Simon French at Cenkos said that despite the evidence of continued progress for Ladbrokes’ digital business – where net revenue growth rose over 48% - he remained cautious due to the moving parts affecting the high-street business.
“Weak retail trends reinforced by the looming triennial review of machines’ stakes and prizes exacerbated by the disappointing multiple achieved for the shops to be disposed of offsets some of our enthusiasm despite the ongoing strong performance in digital,” he said.
The weaker retail trends included a 3.9% like-for-like fall in OTC stakes despite football staking rising 17.3% for the three months to the end of September. The company didn’t reveal the OTC net revenue number but it did say it was flat due to a 0.6 basis point percentage rise in OTC margins to 16.1%. However, it was the machines business which continued to outperform with machine gross win rising 4.6% on a like-for-like basis over the period. The SSBT estate – called BetStation by Ladbrokes – also enjoyed a strong three months with staking rising over 75% and with the SSBT estate now contributing circa 10% of all OTC staking.
Paul Leyland, founding partner at Regulus Partners, said that though online continued to be an “unalloyed success” in revenue terms, there were questions over profitability for both arms of the business.
“Retail revenue growth is unlikely to be enough to offset cost inflation, while whether online has started to positively contribute will depend upon the extent to which growth momentum continues to be bought,” he said.
At Numis, analyst Richard Stuber reiterated his advice after the announcement of the shop sale yesterday that he would be valuing the Ladbrokes Coral combinations’ retail business at a valuation multiple of four times EBITDA. He noted that the business would be 65%-plus exposed to retail.
Totally Gaming says: The good news for Ladbrokes is that it will be carrying momentum across both its businesses into the merger with Coral, and it is a testament to the work being out in by chief executive Jim Mullen and his team. Doubts about FOBTs going forward are suppositions at present, but the company’s semi-plea that any Triennial Review decisions be evidence-based might be hoping for too much at this late stage of the machines debate.