Investors are backing Ladbrokes after a spate of takeover talk and a broker upgrade.
The bookmaker is currently up 2.3p or nearly 2% at 124.6p in a falling market, following a report that Paddy Power could be interested in a £1.6bn or 175p a share offer.
New Ladbroke chief executive Jim Mullen is set to unveil his future plans at the end of the month, and broker Peel Hunt recommends increasing the group’s digital spend and removing the Sky TV service from its shops. Analyst Nick Batram raised his recommendation from hold to buy and said:
When he outlines his strategy on 30 June, we would like to see new chief executive seize the reins and pursue a more aggressive strategy. This would involve a substantial increase in Digital marketing and ditching Sky from UK Retail. Rebasing the dividend looks to be the sensible course of action, although on our bull case the dividend per share could be covered in 2016. The market has a habit of underestimating Scottish chief executives in the gaming sector and there are some early positive signs that it may have done so again.
Our analysis suggests there is little or no return on the Sky TV investment in shops, and an exit from this could save £8m-9m per annum. Coral and William Hill have both scaled back on Sky.
Our risk-weighted sum-of-the-parts scenarios give us a fair value of 135p, within a range of 109p (bear case) and 203p (bull case). Given this, together with the M & A activity in the sector, we believe the time is right to get back on the Ladbrokes’ horse.
