Ladbrokes - the dividend could well be a faller

Ladbrokes: Since I last wrote on Ladbrokes in February, Jim Mullen has been appointed as the new CEO, having previously arrived, in 2013, from William Hill’s successful digital operation charged with repeating the trick at Ladbrokes. Today, we get to see the first quarter trading update. Whilst group net revenue was up 3.3%, UK retail net revenue up 4.3% and digital net revenue up 9.5%, profits have been hit by unfavourable sporting results. The UK OTC gross win margin slipped 50bps to 15.7% and the Digital Sportsbook gross win margin fell 250bps to 4.0%. This comes as the group sees the impact too of the point of consumption tax and increased machine gaming duty. As a result “profits are materially down” and Jim Mullen outlines the scale of the challenges to the business, with the results of his strategic review being brought forward to June this year. First quarter EBIT was £14.3m, down 22.3%, although they come up with an underlying notional increase of 21.2% if you strip out all the bad external stuff. As an early sign of the toughness required, they are seeking an examinership for the Ireland business.  There appears to be little political sympathy for bookies either at the moment, from any quarter, with little relief in sight from unregulated rivals, ongoing local council hostility towards fixed odds betting terminals in shops and little recognition of the role played by bookies in keeping the lights flickering, on otherwise abandoned secondary high streets across the nation.

Last year Ladbrokes declared eps of 10.1p, with a substantial drop likely this year, with 8p a ballpark after that first quarter 22.3% EBIT fall. At the current 102p share price, that would be a PE of 12.8x. The dividend last year was a maintained 8.9p. Whilst debt has come down by £28.7m to £390.5m, this is not as fast as the drop in EBIT. I am of the opinion that the dividend will not make it unscathed through 2015, with a substantial cut now on the cards. Whilst Ladbrokes can be turned around and there is goodwill in the brand name, it could all take a long time to come right. (Neil Cumming^, 22^nd April 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