Ladbrokes leaps on back of thoroughbred first-half results

Bookmaker Ladbrokes first-half profits beat management and City forecasts by a length as favourable results from the sporting gods put an extra sheen on the progress being made after last year's strategic rejig.

Having got of to a strong start in the first quarter, growth accelerated in the second such that revenue for the six months to 30 June was up 13% to £661.8m, led by 40% growth from digital and UK retail rising 6.4%. Most analysts had been expecting nearer £40m.

With digital operating losses of £9.6m due to the significant step-up in marketing during the period, retail growth drove a 34% increase in group operating profits to £52.3m at the underlying level, which excludes exceptional costs mainly related to the merger with Coral, which last month received conditional regulatory clearance.

Underlying profit before tax rose 61% to £39.8m, with earnings per share up 42% to 3.4p and the dividend was held at 1.0p per share.

Chief executive Jim Mullen, who took the reins in April last year, said the strong numbers "show customers are responding positively to the new strategy at a time when the sporting gods have generally been on our side".

Acknowledging that such a run of results in bookies' favour would see customer staking suffer, he noted that punters had continued to chase a turnaround win, with over the counter (OTC) staking up 1.3% on a like for like basis, led by a 15% increase in football for full Premier League season, with an OTC win margin of 17.5%. Sportsbook staking online was up over 30% as active accounts swelled more than 38%.

"However, 130 years of experience in sports betting has shown us that we will endure a run of customer friendly results and margins will normalise. Despite this assumption on results and our intention to continue investing in marketing, we have slightly increased our full year expectations."

The second half appeared to have started well with group net revenue ahead by 14% in the five weeks to 2 August.

For the full year, the analyst consensus forecast was for operating profits of roughly £96m, which is likely to be lifted nearer £100m after Mullen's "slight" guidance upgrade, which analysts at Shore Capital said would equate to PBT of £72m and EPS of 6p.

They added: "The significant momentum at both Ladbrokes and Coral leaves the two groups well positioned to deliver c£500m of combined EBITDA by 2018, which we estimate could be worth over 15p of earnings"

Broker Peel Hunt said the results demonstrate Mullens' strategic plan is paying off: "We believe this is important because the merger of two thriving businesses makes for a much more attractive investment case, in our view, than the proposition that Coral is taking over a struggling competitor. The ambitions of Ladbrokes’ strategy were fourfold: to grow the recreational customer base in the UK; to cross-sell online in the shops; to increase the footfall in retail and to grow market share in Australia."