Analysis of Ladbrokes

Company: Ladbrokes

Business: A UK betting and gaming company. They are active with retail bookmaking and have over 2,800 betting shops as well as being active online but they admit to have been not aggressive enough with the online activities. Currently they are trying to change that with for instance partnership with Playtech.

Active: Their home market is UK and then they are market leaders in Ireland, Belgium and Spain. Currently stepping into China as well as Australia.

P/E: 7.5

The P/E of Ladbrokes is excellent with 7.5 and the P/B is not so interesting due to the high 3.4 and that means the Ladbrokes end up outside of Grahams formula so he would not have liked it. Their earnings to sales are excellent with 18% and the ROE is spectacular with 45%. The book to debt is so, so with the ratio of 0.7. In the last five years they have had a negative growth of yearly -1.6% and from the preliminary data of 2013 they once again dropped in revenue and worse also in profit. Still the motivated P/E would from the annual report of 2012 be around 8 to 10 which means they are more or less fairly valued on the market. They pay a very nice dividend of 5.9% which represents almost 45% of their earnings so unless 2013 was a complete disaster they should at least be able to keep it at a similar level.

Conclusion: Graham says just barely no to this company and I am uncertain. They seem for some time to have had real issues with their online activity and have no tried to change that lately and then the question is if it was enough and just in time or was the actions too late? I would guess due to the decreasing revenue and profits that Ladbrokes have a lower P/E than other betting and gaming companies which makes them contrarian and therefore also a bit interesting to me. They have a nice P/E, the ROE is excellent and the dividend also great. In cases like this one, potential turnarounds, the best is to follow their quarter reports and see when they start to turn it around and then decide if one should step in as shareholder or not.

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