Stakes verdict looms for Ladbrokes Coral

Stakes verdict looms for Ladbrokes Coral

Tuesday, March 28, 2017 Posted by Scott Longley
Analysts wary over impending UK triennial review

The effect of Ladbrokes and Coral high-street retail outlets not having full TV coverage of UK horseracing would appear to be the main contributor behind a slump in over-the-counter (OTC) stakes, according to the newly-merged company’s debut annual results.

The company reported operating profits in line with forecasts for 2016 helped by a pro-forma 11 percent rise on total revenues to £2.35bn. Group pro-forma EBITDA rose to £380.7m, up 14 percent on last year.

However, the picture of the current trading picture was more mixed with group net gaming revenue up 2 percent on the same pro-forma period last year with UK retail down 1 percent overall and like-for-like OTC stakes down between 5-6 percent.

Since the new year Ladbrokes Coral shops have been without pictures from The Racing Partnership tracks due to a dispute over fees including all-weather racing from Lingfield. It has led to a blackout of all UK racing on at least two occasions in the past three months, although in Ladbrokes shops the racing has been covered by so-called ‘off-tube’ commentaries from the blacked-out tracks,

But Simon French at Cenkos believes the effect of no pictures is evident in the current trading figures. “We suspect the (OTC decline) is impacted by less horseracing coverage,” he said in a note to clients.

There was better news for Ladbrokes Coral from the digital operation which had continued its 2016 gains (where pro-forma digital operating profit rose 125 percent) with digital net revenues rising 20 percent in the period to mid-March. Within that sports-betting net revenue was up 34 percent while gaming was up a less stellar 8 percent.

However, analysts remain concerned over what lies in store for Ladbrokes Coral and the other high-street bookmakers from the upcoming triennial review which is expected to report after Easter. The company said it was encouraged by statements from the Department of Culture, Media and Sport (DCMS) that “emphasised” that all decisions would be evidence-based.

At Numis, Richard Stuber said he remained “cautious” on the company due to the review overhang.

“We are increasingly concerned with its exposure to retail and in particular gaming machines which are subject to the government's triennial review,” he said in a note to clients. “Widespread reports suggest the maximum B2 stake will be severely reduced from £100.”

Over at Liberum, Jason Holden was even more sceptical. “While the merger is transformative and synergy benefits have exceeded expectations, the investment case for a business with a circa 40 percent share of UK high street bookmaking appears challenging at best,” he wrote this morning. “Ladbrokes Coral is a massive bet on this industry and with the outcome of the DCMS review into gaming machines imminent we can foresee a significantly negative impact.”

He added that a 25 percent reduction in machine income – likely if the maximum stake was cut to £20 or below – it would wipe a third off full-year 2018 earnings per share (EPS).

Jim Mullen addressed the current regulatory position. “It is very clear the TR will be a pivotal moment for this industry,” he told the analysts. “We have not been given any formal guidance.”

Nevertheless, he remained confident during the call pointing to the size of the company in terms of revenues and emphasising the importance of scale. “We are well-placed in the markets we are in and there are encouraging signs of progress in all parts of the business,” he said.

The company upgraded its estimate for cost synergies from £65m to £100m with £35m to be delivered this year compared to previous estimates of £20m.

Totally Gaming says: Despite repeating the mantra about evidence-based policy, the Ladbrokes Coral management (and shareholders) have to be nervous about what the upcoming triennial review will say about stakes and prizes on machines. Any cut below the effective upper limit caused by the imposition of the £50 journey will hurt the sector and almost inevitably lead to shop closures. The only question now is about the quantum.

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