Ladbrokes Coral results: What the analysts said

Ladbrokes Coral today reported a 14%cc rise in digital revenues, with double-digit growth in both sportsbook and gaming.

The figures were arguably the highlight of the results, which otherwise didn’t contain too many surprises, with the share price barely budging.

Below are a selection of analyst notes on the operator’s financial results:

Regulus Partners

Ladbrokes Coral’s management has breathed life into a collection of hitherto underperforming assets over the last c. three years and is now extracting significant cost synergies from the merger.

However, 22% of LCL’s group revenue and c. 80% of group EBITDA is generated from B2 content: the DCMS Review, likely in October, is therefore potentially existential regardless of possible ‘mitigation’ plans. In the (not much) longer-term, growing online enough to mitigate declining retail, especially at the profit level, is likely to become increasingly challenging, in our view, especially as UK growth continues to be concentrated into a relatively small number of increasingly strong operators.

This combination of regulatory and channel shift threats could potentially put more pressure on LCL than anything yet seen in the sector, with very little room now for management to take evasive action.

Morgan Stanley

We see Ladbrokes Coral as well placed to deliver ongoing upside surprises to forecasts, with its strong cash generation supporting rapid dividend growth that should boost total shareholder returns.

At the current share price, the market-implied value of Retail is around 1x EBITDA, suggesting that even a very negative outcome from machine regulation is priced in. We see upside potential from strong online revenue growth and rising efficiency gains from Coral’s management expertise and excess synergies.

The shares are trading on a 2018e P/E of 7.2x, with a 16% FCF yield, and given the strong growth in Online, margin catchup for Ladbrokes Online division, and significant synergies, we see this as highly attractive.

Share rating: Overweight

Stifel

The update today shows pre tax profits at the top end of the previously guided range. The shares have been overshadowed by regulatory uncertainty but are clearly discounting a significant reduction in machine income.

We consider the shares are undervalued given the benefits from the merger and the increasing proportion of online profits.

Share rating: Buy

UBS

The Digital division beat our expectations driven by better margins, notably with marketing as a percentage of sales falling to 26.8% (-1.3pp yoy) and the delivery of initial synergy savings. As highlighted at the post-close trading update, sportsbook net revenue was up 25% yoy (18% cc), and gaming up 11% (10% cc).

Current trading shows Digital net revenue growth of +15% (13% cc) driven by 24% cc growth in sportsbook (benefiting from strong margins in UK/Italy, weaker margins in Australia) and a more disappointing 4% in gaming (albeit stronger in August than July).

Share rating: Buy

Cenkos

Given the detailed H1 trading update of 27 July, the new news lies in current trading (group NGR +5% in constant currency) which is mixed with improving UK Retail trends (-1%) and robust Digital (+13% in constant currency) albeit with a weak Gaming performance (+4%) but remains on track to meet FY expectations.

The stock is not expensive trading on a 2017E EV/EBITDA of 7.3x and yielding 4.2% but the near-term outlook remains very uncertain given regulatory gyrations in the UK and Australia.

Share rating: Hold