Ladbrokes Coral results: What the analysts said

Ladbrokes Coral released its H1 trading update this morning, revealing a 14% rise in digital net revenues.

Here are a selection of notes on the operator’s financial results from some of the leading leisure industry analysts:

Morgan Stanley

Digital gross win margins increased, suggesting recent peer commentary around poor sports results may be a company-specific rather than industry-wide impact. Most importantly, with outperformance in the key Digital division continuing and a significant increase to synergies we expect outer year forecasts to rise and serve as greater protection against regulatory headwinds that we already consider priced in.

Stock rating: Overweight

Cenkos

Ladbrokes Coral has announced a mixed H1 trading statement with revenue down 1% in constant currency (+1% reported) and EBIT forecast to be up 4-7% to £153.3m-158.3m. Poor performance in UK Retail (net revenue -6%) and European Retail (net revenue -10% in constant currency, -1% reported) were broadly offset by continued growth in Digital (net revenue +14% in constant currency, +17% reported). Digital is broadly unchanged with an improvement in the gaming performance. The stock trades on a 2017E EV/EBITDA of 7.5x. This is not expensive but remains appropriate given the regulatory uncertainty and mixed trading picture, HOLD.

Stock rating: Hold

Deutsche Bank

The Coral integration is materially outperforming original cost synergy expectations. However, upgrades will likely be overshadowed by ongoing uncertainty around the Triennial Review in the shorter term. We see a re-rating over time as the business mix moves from retail towards online (>40% of EBITDA by end FY18E).

Stock rating: Buy

Peel Hunt

Digital, in our view, the reason to buy the shares, was encouraging, although we don’t know the contribution from Australia to the mix. Up against the Euros in 2016 stakes were up 18% (cc); sports revenue was up 18% (cc) despite poor 2Q17 UK margins. Gaming in sports brands was up 14% (cc) while bingo dragged.

Stock rating: Buy

Regulus Partners

LCL is doing many of the right things. The decision to test retail without some aggressively priced volume horseracing content was a brave one, and has paid off in terms of manageable disruption and a better deal. Growth in digital is clearly slowing, but remains solid enough to drive profitable growth. More synergies are being found, including based upon sustainable productivity improvements rather than simply cutting duplicate costs.

Nevertheless, LCL is facing two strategic challenges. The first is regulatory change to UK gaming machines, likely to be announced in October and implemented H2 next year: a minority government makes a benign outcome materially less likely for a product upon which the group is largely dependent from a cash flow basis. The second is channel shift: LCL’s UK retail division lost c. £35m of betting revenue in H1, while online (internationally) gained only c. £27m.

UBS

We continue to see Ladbrokes Coral shares as undervalued, as the market is pricing in a very negative scenario for the triennial review on FOBTs. We continue to believe the market expects maximum stakes of £10 to be implemented, with no offset from longer session length, more OTC betting or a shift of more customers into Online. We had argued that the £100m synergy target was too low, yet we continue to see upside to this with the delivery of some revenue synergies on top.

Stock rating: Buy