Why Credit Suisse is backing UK betting giants

Why Credit Suisse is backing UK betting giants

Tuesday, January 12, 2016 Totally Gaming
The financial group was positive about Ladbrokes and William Hill

Ladbrokes and William Hill shares were both up today following positive research published by Credit Suisse.

Ladbrokes was up by more than two per cent after the financial services group upgraded its stance on the company to 'neutral' from 'underperform', raising the price target to 130p from 85p, pointing to upside potential post-merger from a digital recovery and cost synergies.

Credit Suisse said the resultant company from the proposed £2.3bn (€3.2bn/$3.6bn) merger with Coral – which will be decided upon by the UK Competitions and Markets Authority (CMA) before June 24 after a full investigation was announced - will have a better earnings mix and the bank forecasts stronger medium-term earnings growth, albeit with a little initial disruption from integration.

"Given the likely disruption from the integration of the businesses and shop divestments, we do not forecast a meaningful improvement in earnings until 2018, but on a medium-term view, are very positive on the combined entity compared to standalone Ladbrokes,” Credit Suisse said.

As expected, the CMA ordered the full investigation into the merger after it was found that the proposal gives rise to a “realistic prospect of a substantial lessening of competition” in the retail betting market. The CMA said that additional concerns will be examined during phase two of the investigation.

Meanwhile, Credit Suisse believes that William Hill’s existing strength means that it can continue at the top of the market, despite not becoming involved in the merger and acquisition (M&A) merry-go-round that has dominated the industry in the last couple of years.

Analysts upgraded William Hill to 'outperform' from 'neutral' and lifted the price target to 500p from 420p, saying the cash return story was as attractive as M&A.

The bank said it disagrees that William Hill is being left behind by ongoing industry consolidation, and reckons it will continue to be competitive. It added that William Hill is in a strong position heading into this year, with the wider industry benefiting from football’s European Championships and weak comparatives.

Credit Suisse aded: "Furthermore, while peers are focused on integration, William Hill's management can focus on taking market share. We see the potential for significant cash returns to lead to a re-rating for the stock.”


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