Ladbrokes PLC Walloped By The Curse Of Winning Favourites

Ladbrokes PLC (LON:LAD) sees its profits halve due to “customer friendly” results and IT integration costs.

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LADBIt’s been a painful six months for Ladbrokes (LSE: LAD). The betting company has been moving many of its online products to a new platform, incurring extra costs as it does so, and sporting results haven’t gone its way.

The trend towards smaller field sizes in horse racing meant there was a 20-year high in the number of favourites winning in the first six months of 2014. That’s good for us punters, but not so good for the likes of Ladbrokes. All in all, favourites have won 37.5% of races so far this year, but the ratio was even higher at the popular flat festivals at Epsom and Ascot.

Ladbrokes has been attempting to address this trend by moving its betting business more towards football, but a series of customer-friendly results, as it calls them, hampered profits there as well. All this misfortune meant a 21% reduction in profits at its core UK retail division in the first half of 2014.

Mobile takes over

In its Digital division, as you might expect, mobile betting is increasingly taking over from desktop betting and now accounts for over half of all staking. Ladbrokes did particularly well from the World Cup, but once again, other unfavourable sporting results conspired to hold back margins in this division.

Despite the customer friendly results helping ordinary punters, High Rollers didn’t join in the fun. Profits made from this group more than trebled to £10.7m, out of total operating profits of £67.5m. Once various exceptional costs and hefty finance expenses are deducted, pre-tax profits for the first six months of 2014 came in at just £27.7m, a little over half of what was achieved last year.

Trouble ahead

Ladbrokes remains relatively upbeat about the second half of 2014, as it believes it has laid solid foundations for future growth. But it will face new regulations on some betting machines, and the new 15% place of consumption tax for online gambling also comes into effect. It’s also clearly concerned about the long-term health of horse racing in the UK.

Ladbrokes half-year dividend is being held at 4.3p, and it remains committed to paying a full-year dividend of at least 8.9p per share. Its shares, up 2% to 133.5p this morning, therefore yield a prospective 6.7%.

Despite today’s little rise, its shares are well down on their recent high of 240p set in early 2013, are at pretty much their lowest level for over 20 years (if the share price chart on its website is accurate).

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.

Stuart Watson has no position in any shares mentioned. The Motley Fool 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.

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