Should You Buy Betfair Group Ltd Instead Of William Hill plc Or Ladbrokes PLC?


The World Cup may seem like a distant memory, but it was thrust sharply back into focus this morning when bookmaker Betfair (LSE: BET) released its first-quarter update.

That’s because the World Cup gave the company a considerable boost. First quarter revenues increased by 30% as existing customers bet big on the tournament and it also provided a swathe of new customers, too.

However, while the World Cup undoubtedly contributed to the positive results, even if it hadn’t taken place Betfair would still have delivered a year-on-year increase in revenue of 12%.

Does this mean that Betfair is now a more attractive investment than sector peers William Hill (LSE: WMH) and Ladbrokes (LSE: LAD)?

A Lack Of Growth

Perhaps the most striking thing when looking at the three companies is their lack of future growth potential. Indeed, Betfair is the best of a bad bunch in this regard, with its bottom line expected to increase by 2% in the current year, but then decline by 3% in the following year.

Although this is disappointing, it’s better than the forecast performance of William Hill and Ladbrokes. For instance, William Hill is set to post flat earnings this year, before a decline of 7% next year. Meanwhile, Ladbrokes is due to be the worst performer of the three in terms of profitability growth, with a fall of 14% expected this year and a drop of 10% next year pencilled in for next year.


Despite this, none of the three companies seems to offer particularly good value for money right now. Betfair, for instance, trades on a price to earnings (P/E) ratio of 22.6, which seems hugely excessive at a time when the FTSE 100 has a P/E of just 13.9. Although much better value, Ladbrokes is due to see earnings fall (as mentioned) and so its P/E of 12.9 also appears to be unjustly high.

Indeed, it is only William Hill that appears to offer at least some value, with its shares trading on a P/E ratio of 12.2. Furthermore, it currently yields an impressive 3.5% but, crucially, has considerable scope to increase its payout ratio. For instance, it currently pays out just 43% of profit as a dividend, which seems to be rather low. Therefore, an increasing payout ratio could not only mean higher dividends per share, but a rising share price over the medium term, too.

Looking Ahead

With a lack of growth and an inflated P/E, Betfair appears to offer little attraction at its current share price. The same can be said of Ladbrokes, with its current P/E not appearing to factor in the anticipated drop in earnings. Meanwhile, William Hill, although not cheap, appears to offer the best value and the best prospects. An increasing payout ratio could stimulate demand for the shares and make it the best performer of the three over the medium term.

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Peter Stephens owns shares of William Hill. 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.