Ladbrokes shares traded higher mid-session, riding on the back of the betting company’s in-line preliminary 2008 results but analysts reactions were mixed, with one recommending it’s now safe for investors to buy while others suggested using today’s gains as an opportunity to get out of the stock.
At 1.00pm, Ladbrokes was up 3.4% or 6.25p at 188p, albeit off an intraday peak of 197p, while the FTSE 250 index slipped 0.2% or 14.48 points lower to 6,231.29.
The group this morning posted operating profit for the year, excluding high rollers, of £243.8 million, up just 0.9% on 2007 as extra costs offset gross win gains. High rollers contributed £80.1 million of operating profit to the group. Gross win, excluding high rollers, increased by 11.1% year-on-year to £1.1 billion.
Ladbrokes said it has already seen gross win growth of 1% over the first six weeks of 2009 (excluding high rollers), despite the unusually high levels of UK and Irish horserace abandonments.
“Notwithstanding the challenging economic background, Ladbrokes has continued to grow during 2008,” chief executive Christopher Bell commented.
Responding to the results, James Hollins, analyst at Daniel Stewart, said the group’s underlying performance was stronger than expected, thanks to superior cost controls driving a better margin.
Hollins noted that Ladbrokes announced a dividend of 9.05p, implying a full-year yield of 7.8%, which it is able to pay due to exceptional high roller income, strong underlying cash generation, a positive outlook and zero debt concerns.
“Ladbrokes is back in buying territory, with strong results and expected ongoing resilience offline and growth online,” Hollins said. On this basis, the broker said it has upgraded its recommendation to Buy from Hold, supported by an expected 2009 yield of 5.9%, with the price target unchanged at 207p.
But Daniel Stewart was largely alone in its praise of the group. Evolution Securities analyst Ivor Jones said Ladbrokes’ results were in line with expectations but the core over-the-counter (OTC) business is flat and the group is having to work ever harder to stand still.
“Ladbrokes faces the risk of a tax raid; a regulatory hit to FOBTs [fixed odds betting terminals]; a contingent liability relating to Hilton Hotels; and Online faces a reinvigorated William Hill in an already highly competitive market,” Jones warned.
The analyst conceded that high roller cashflow has helped to address the balance sheet issues but said he is very cautious about 2009 trading. “The shares are likely to be marked up today and shareholders should use the opportunity to sell,” he concluded.
Evolution continues to rate Ladbrokes a Sell with a price target of just 150p, believing the risk/reward ratio is better at William Hill, which it rates Buy with a target of 250p.
Amongst other broker reactions, Merrill Lynch reiterated its Underperform stance on the stock and 160p price target, Blue Oar kept its Sell recommendation and Teathers repeated its Reduce advice.
