Ladbrokes – Worth a Punt?

By Robert Sutherland Smith

As a “stale bull” of Ladbrokes ordinary shares I opened Ladbrokes’ (LAD) preliminary results for the year to December 31st with much interest and some apprehension. 

I am glad to say that on balance, I found things encouraging. Ladbrokes is a long established and widely recognised high street brand name and has been in the bookmaking business for many a year. I do not myself frequent the bookie shops – except Foyle’s in Charing Cross Road – but I understand that the company has a steadfast body of brand-loyal customers writing out their slips. Indeed, the latest figures seem to provide a clear indication of that.

The first attraction of Ladbrokes at the moment is the share price chart. You will see that the shares have been on a long, steep downtrend which began in early 2012. That downtrend was broken last month; so we have in ‘technical’ terms a breakout. That in turn leads to a second attraction in the preliminary results for the year to 31st December 2014, published on Thursday: they were not as bad as a first glance would suggest in three respects.

First, tip line sales revenue was up nearly 4%. Second, the underlying adjusted figures, which are meant to correspond with those contained in market consensus forecasts, were better than the bald statutory version which included some significant exceptional items which are unlikely to be repeated. Whereas the published statutory results showed operating profits down 29% and basic earnings per share down nearly 40%, the reported estimated underlying figures (to make them properly comparable with the previous year) were down only 9.3% and 13.7% respectively – still down but not horrifyingly so. 

Third, a little analysis reveals that the published annual figures hid the fact that the second half was dramatically better that the first half, and that the solid second half result was masked by the annual result. The reported fact is that operating profit was up 30% in H2 and 34% down in H1. That has to be encouraging.

The most important thing was the fact that the dividend was held at 8.9p (a sign of management confidence?) with the expectation that it will be held this year as well.  Add the fact that the annual dividend yield works out at 7.47% and you clearly have, on that basis, an undervalued share. The shares I add go ex-div the final dividend on the 26 March.  

The other encouraging thing about the results was the firm and in my opinion (read it for yourself) positive tone of the statement that included confirmation that all objectives had been met on time; an improving customer profile in H2; clear and established operating objectives in 2015; and the fact that exceptionals in 2014 were reported to have been a significant, at £72 million. I also took note that digital sales – previously a problem area – rose 22% and telephone betting increased by 57%. (Digital and telephone are about one fifth of total sales with digital revenue being approximately 21 times bigger than telephone sales.)

Moreover, the shares have underperformed the FTSE100 Index by a relative 28% over the last year and have lagged the share price of William Hill (WMH) by about 20%. If you are looking for a recovery stock with an exceptionally high dividend yield that is showing signs of life, then have a look at this one. Personally, I think it undervalued and attractive.