Financial Analysis of Ladbrokes

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Title: Financial Analysis of Ladbrokes 1) Ladbrokes is the world’s leading fixed odds betting company. The company was established as a partnership in 1886[1]. The business listed on the London Stock Exchange in 1967. The company also diversified into hotel business by opening hotels and purchasing Hilton International Hotels in 1987. In 2006, Hilton International was sold to Hilton Group and now Ladbrokes plc focuses on betting business only. Ladbrokes reaches its customers through the following four core routes:

  • 2,500 betting shops spread over UK, Ireland, Jersey and Belgium[2];
  • Website and telephone betting for European players;
  • Casino – Recent entrant; and
  • Vernons Pools – Football pool operator

The business faces numerous competitors in different segments. They are few large operators of betting shops but Ladbrokes group is a well established leader. The most volatile business segment is the internet betting which was impacted by the change in US laws which made internet betting illegal and this action might be followed by other European countries. Football pool business is declining in its share and chances of its revival are less. The company faces following main risks:

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  1. Internet betting. US has already made internet betting illegal. It is expected that some of the European countries are also thinking of making it illegal because it’s a loss to their tax revenues.
  2. Foreign exchange. As Ladbrokes plc has customers across Europe, strengthening of Pound against Euro will lower its revenues and profits in Pounds.
  3. Interest rate. Increase in interest rate will reduce profits in terms of higher interest payments and increase in expenses linked to retail price inflation like employees salaries.
  4. High losses in some championship due to adverse winning by clients.

The latest full year accounts are available for the year ended 31 December 2005. Appendix I shows the summary financials. The profit and loss results compare the change in financials over the year from continued business only to give a better idea about future prospects and valuation. The revenue from continued operations increased by 13.6 % to £11,505 million. EBITDA is low because winnings are distributed from revenues only. Profit after tax increased 2.5 % to £196 million. The total number of outstanding ordinary shares is 628.13 million[3]. Ladbrokes share price is 452.25 pence[4] giving it a market value of £2.84 billion. Ladbrokes share price has moved upwards significantly in the last four months on back of grant of new licences to open betting shops across Europe and good trading for the ten months ended 31 Oct 2006. Profits from the continuing operations increased by 5 % in the ten months period ended 31 Oct 2006[5].

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