Ladbrokes gets off to a flier in first quarter

Unlike some of its rivals, Ladbrokes got off to a flier in the first quarter, with encouraging sales growth indicating new chief executive Jim Mullen's turnaround plan is working but also helped by a tailwind of favourable sporting results.

As the bookmaker refurbished 73 betting shops under the first phase of its UK retail transformation, group net revenue jumped 10.6% in the three months to 31 March compared to the same period last year, with UK retail net revenue rising 4.1% and digital revenue fizzing up 36.5%.

UK retail revenue was driven higher despite over-the-counter (OTC) stakes being broadly flat compared to the same period last year driven by good football staking growth and self-service betting terminals (SSBTs), counterbalanced by the worst Cheltenham festival "in living memory".

In the first full quarter of the enlarged SSBTs estate, which is now the UK's largest, the amounts taken by the terminals increased 172.5% year-on-year.

Net revenue from fixed-odds betting machines grew 1.1%, or 2.9% on a like-for-like basis, benefitting from the introduction and promotion of lower-staking slots and B3 content.

The impressive digital result was thanks to a 59% growth in sports book net revenue, with amounts staked up 35% and continuing growth in active users by another 27% and gaming ahead by 27%.

Mullen said it was an encouraging start to the year and that he saw "plenty of evidence that indicates our plan is working but we are still early in our turnaround strategy and our priority remains on continued growth in our recreational customer base".

He admitted results throughout the first few weeks were largely in the company's favour and customer metrics have continued to be strong, as part of his strategy to bring in more recreational customers and reinforce the status as "the nation's favourite bookmaker".

"Our focus remains on best in class customer service, superior quality of product and maximising the multi-channel potential of our business. We continue to be pleased by the reaction to our increased marketing, our products and multi-channel proposition."

Interestingly, Mullen noted that at Cheltenham there was such intense competition that offers and pricing were at levels which the company believed "abandoned bookmaking principles".

Looking forward, Ladbrokes still has a liability of roughly £3m should Leicester City win the Premier League and the upcoming European Championships brings the potential for a rather more predictable early stages due to the expanded format.

Furthermore, the examination of the Coral merger will see results from the Competition and Markets Authority in mid-May, with possible remedies to be announced.

Analysts at Canaccord said they expect the CMA will push for 400 to 450 store sales or closures, though this still "leaves a compelling strategic rationale for the deal".

"Ladbrokes is in the early stages of a transformational journey," they added, keeping their full year forecasts unchanged at this stage. "Historical operational weakness has made for some easier targets, but momentum now looks encouraging, with strong progress across all key KPIs."

Broker Shore Capital also said it would keep full year pre-tax profit forecasts unchanged at £64m, with earnings per share of 5.3p, but that the trading update underpinned a base case for the shares' standalone fair value of circa 100p, with rumours around increased Belgian VAT that could be worth roughly 5p per share.

"Going forward, the investment case revolves around the proposed merger with Coral," ShoreCap said. "If successful [...] the stock could be worth circa 180p with the current price suggesting that the market is implying a circa 25% probability of success. We would suggest it's worth at least 50/50."

Ladbrokes' shares were up 4% to 120.9p just after 1000 BST on Thursday, still short of March's six-month high of close to 140p.