Ladbrokes - don't bet on the dividend

Ladbrokes: So, the book is still open on who will succeed Richard Glynn as CEO. This leaves these full year results to 31^st December 2014 as a holding exercise. Revenue was ahead 3.8% at £1.16bn, driven by a 22.9% lift to £215.1m in ‘Digital’ as they re-boot with the help of Playtech. Pre-tax profits were down 13.5% at £98.0m, with ‘Digital’ progress more than offset by ‘UK retail’, where patchy sports results and re-structuring disruption took their toll. Who knows if you feel sorry for them that, group-wide, they dropped £8.1m on Boxing Day footie results, which, by and large, went according to the form guide. On the high street, 89 shops were closed in 2014, with a further 60 closures slated for 2015, the result of regulatory changes and shifting customer preferences. Eps were down by a similar 13.7% at 10.1p, whilst, on the dividend front, the board seem to have carried on whistling by keeping the annual total at 8.9p. Whether or not an incoming CEO will be pleased with the declared intention to pay the same again in 2015, remains to be seen. The company makes much of having spent the first half re-plumbing the group and starting to reap the rewards over the World Cup and into in the second half. They also point out that c14% of net revenue now comes from overseas (mainly Australia, Belgium and Spain). Results in Ireland were bad enough to trigger a “fundamental review”, so their card is marked.  

The big quandary is what happens to the dividend now. The board aims to set the dividend based on earnings cover and a 1.5x-2x net debt to EBITDA range. At present net debt at £419.2m is about 3x depressed EBITDA, so the, barely covered, dividend should be at risk. However, they have stated the current intention to go again in 2015, although that does leave a line of retreat open. That get-out is key, as I would suggest that any incoming CEO would want to rebase the dividend, sort the balance sheet and invest enough to secure the turnaround in the group’s profitability. Even ahead of any kitchen-sinking, tough markets and regulatory burdens are causing analysts to be thinking of a ball-park 8p of eps in 2015, which would leave the dividend uncovered. Having rallied to 120p, from lows near 100p, the shares would be on 15x those eps with a vulnerable looking 7.4% yield. If you want to invest in the stock as a recovery under a new CEO, then that is grand, but don’t assume that the juicy dividend will be part of the deal. (Neil Cumming^, 26^th February 2015) 

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower