Ladbrokes plc rockets as merger with Gala Coral Group Limited set to go ahead

Investors have welcomed news about a tie-up between Ladbrokes plc (LON: LAD) and Gala Coral Group Ltd.

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.

The traditional “sin industry” of betting is actually booming in this country. But it’s a crowded market place, with fast growing online companies such as Paddy Power Betfair and GVC jostling for position with the traditional betting shops such as market leader William Hill.

The merger is now likely to go ahead

It’s a little like the supermarket sector in the UK, with a rapid transition to online trading, growing numbers of retail outlets, and a close-fought battle between an increasing number of competitors. In order to preserve profit margins and earnings, this is leading to consolidation in this fast moving industry.

In the past few months, the second and third most popular betting firms — Ladbrokes (LSE: LAD) and privately-owned Gala Coral Group Limited — have been in advanced talks to join forces. A larger company would mean lower overheads and more funds to spend on the all-important marketing and advertising that drives this sector.

The question with this merger has always been just what the competition authorities would allow. After all, Ladbrokes owns 2,154 shops in the UK, and Gala Coral operates 1,850. Put these two together, and they would very substantially out-muscle William Hill, and would arguably be too powerful a force in the UK bookmaking industry.

So the Competition and Markets Authority (CMA) has had to perform a delicate balancing act. And the news today that it will allow the merger to proceed, as long as 350 to 400 shops are sold, sounds a fair compromise. The merger is likely to be cleared once this transaction takes place.

And the CMA’s logic seems clear: when the market place is as crowded as betting is, it becomes harder to argue that reducing the number of competitors raises monopoly concerns.

And this has been welcomed by investors

Not surprisingly, investors have welcomed this news by pushing Ladbrokes’ share price up more than 10% at the start of trading today. After all, the new company would have a dominant position in this sector.

If we now assess the investing credentials of Ladbrokes, I think it certainly holds appeal. It is moderately priced at a current P/E ratio of 12.60, with a dividend yield of 4.28%. Although the degree of competition in this sector means there won’t be rapid growth, I think that this is worth considering as a dividend investment.

As well as its UK company, Ladbrokes has shops in Ireland, Belgium and Spain, and a growing online betting business. Expanding internationally and through apps and the internet seems to be this company’s most likely route to future riches.

Overall, my top pick in this industry remains the small cap online firm GVC, as this has greater prospects for growth, and is still reasonably priced. But for those who are on the look out for income investments, Ladbrokes could certainly be of interest.

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.

Prabhat Sakya 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

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

This FTSE stock tanked 58% last week. But there could be some good news!

Shares in John Wood Group plunged after the FTSE engineering stock released a trading update. But our writer thinks there…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£1,000 invested in Tesla shares 2 months ago is now worth…

Tesla shares have soared over the last decade. However, since 17 December 2024, they have lost more than a quarter…

Read more »

US Stock

Could Trump’s tariffs cause a stock market crash?

Jon Smith looks at the recent whipsaw movements in the markets relating to US trade policy and talks through stock…

Read more »