Is 32Red Plc A Better Buy Than Ladbrokes PLC, Betfair Group Ltd Or William Hill plc?

Is 32Red Plc (LON:TTR) a buy after today’s acquisition, or do Ladbrokes PLC (LON:LAD), Betfair Group Ltd (LON:BET) and William Hill plc (LON:WMH) offer better growth prospects?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Small-cap online betting firm 32Red (LSE: TTR) moved higher this morning after announcing the acquisition of Roxy Palace Casino for £8.4m in cash and shares.

Payment will be with £2m of cash from 32Red’s net cash balance of £7.0m and 10m new shares, which are worth around £6.6m at today’s 66p share price.

According to 32Red, Roxy Palace generated net gaming revenue (NGR) of £10.1m last year, and earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.6m.

32Red reported NGR of £32.1m and EBITDA of £5.4m in 2014, so Roxy Palace should add about 30% to 32Red’s NGR and EBTIDA.

The £8.4m paid for Roxy Palace is 5.3 times EBITDA, which also looks reasonable to me, especially as both companies use the same gaming platform. This should mean that 32Red can find some cost savings and have little difficulty integrating its operations with those of Roxy Palace.

Is 32Red a buy?

My calculations suggest that the additional earnings generated by Roxy should broadly cancel out the dilutive effect of the 10m new shares issued to pay for this acquisition. This means that earnings per share forecasts could remain largely unchanged for next year.

Assuming I’m right, 32Red shares now trade on a 2015 forecast P/E of 12.7, falling to a P/E of 9.6 for 2016, based on the latest forecasts from the firm’s broker.

The stock also offers an appealing, cash-backed dividend yield of about 4%.

I think 32Red looks good value and could be an interesting buy.

However, I am concerned that the firm’s small size could means it lacks the defensive advantages of scale enjoyed by competitors such as Ladbrokes (LSE: LAD), Betfair Group (LSE: BET) and William Hill (LSE: WMH).

3-point comparison

32Red is a specialist business focusing on online casinos, poker and bingo websites only. In contrast, Ladbrokes, Betfair and William Hill all offer a wider range of sport and gaming services.

Ladbrokes and William Hill also have high street branches too, while Betfair only operates online.

Here’s how the four firms compare in terms of valuation, yield and profit margins:


2015 forecast P/E

2015 forecast yield

Operating margin













William Hill




Earnings have crumbled at Ladbrokes and the firm is in the middle of a cost-cutting business review and an attempted merger with Gala Coral. It’s hard to guess how things will eventually pan out, but Ladbroke’s combination of high debt, low dividend cover and an uncertain outlook is a turn off for me.

Betfair is very profitable and generates a lot of free cash flow, enabling it to fund growth without debt. However, the firm’s forecast P/E of more than 30 looks demanding to me. Earnings per share are expected to fall slightly this year before rising in 2016, but if future growth falls below expectations, the firm’s shares could fall sharply.

William Hill looks more appealing. This year’s forecast P/E of 16 should fall to 14.5 in 2016, and the firm’s steady dividend growth has been consistently covered by free cash flow in recent years. Debt levels are reasonable and Hill’s operating margin of 17% is three times that of high street peer Ladbrokes.

For a long-term mix of income and growth, I believe William Hill could be a sensible buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 14% in 2024, what’s next for the Lloyds share price?

This Fool takes a closer look at what prompted the Lloyds share price to rise this year, and offers her…

Read more »

Investing Articles

5 FTSE 100 stocks to consider for a lifetime of passive income

I see lots of cheap dividend stocks in the FTSE 100 right now, but prices are starting to rise. Here's…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

3 growth stocks I’m desperate to buy as the FTSE 100 dips

Never waste a dip, says Harvey Jones. Three of his favourite growth stocks have fallen over the last month and…

Read more »

Investing Articles

I’d use a £10K ISA to try and generate £900 in dividends annually like this!

Christopher Ruane explains how he would invest a Stocks and Shares ISA in blue-chip companies to try and set up…

Read more »

Investing Articles

Here’s how I’d build a second income stream worth £1,228 a month by investing £10 a day!

A second income stream could come in handy later in life. This Fool explains how she’d build one by investing…

Read more »

Investing Articles

5 FTSE 250 stocks I’d buy for a lifetime of passive income

Here's why I think the FTSE 250 could be the best UK stock market index to go for in 2024…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Buy cheap FTSE shares, says HSBC

Analysts at HSBC have upgraded their rating of FTSE stocks and reckon the blue-chip UK index could carry on powering…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

It could be worth buying the dip for this FTSE 250 stock, down 7% today

Jon Smith spots a sharp drop in a FTSE 250 stock but explains why this could just be a blip…

Read more »