After years of trying to improve its online offering, bookmaker Ladbrokes (LAD) continues to face an uphill battle. A trading update reveals that operating profit for its digital division will be below current market expectations. That's quite a blow considering that analysts already had low expectations. Unsurprisingly, the share price is weak off the back of the news, falling 7.5% to 173.95p.

LAD - Comparison Line Chart (Actual Values)


Ladbrokes has partnered with gambling technology expert Playtech (PTEC) to improve its digital offering. Analysts didn't expect the benefits of this relationship to appear until its 2014 financial year.


In August, stockbroker Davy said 'Ladbrokes is fast running out of time when it comes to efforts to turn around its online (digital) business. Excluding its acquisition of Betdaq, online revenues fell 1.6% in the first half of the year; at the same time, most of its major UK peers are forecast to have delivered good double-digit growth.'


Ladbrokes warned in its half-year results (8 Aug) that it had seen a tough trading environment in both its retail and digital operations. It gave an early 2014 target to finalise the integration of the Playtech system. Today it claims not to have seen any 'discernible improvements' as it works on the project. The activities are no doubt a disruption to the business, but fundamentally one cannot escape the fact that its peer group – particularly William Hill (WMH) and Paddy Power (PAP) are streets ahead when it comes to having online functionality. And that's what the punters want.


The £1.7 billion cap admits that its digital earnings have been disappointing because it lacks a competitive sportsbook offering, together with having lower margins than expected.


What's particularly interesting is a potential red flag for the dividend through the company's choice of words. In the trading statement, chairman Peter Erskine says Ladbrokes has a 'strong belief' in the ultimate success of its digital upgrade, underpinning the company's commitment to maintaining the dividend at its current level for 2013 and 'at least' maintaining it in 2014. That contradicts with consensus forecasts where analysts expect an 8.96p per share dividend in 2013, rising to 9.39p in 2014.


Shore Capital and Panmure Gordon don't forecast any dividend increase in 2014 and we wouldn't be surprised to see other brokers scale back their dividend forecasts off the back of today's announcement.


We looked at the gambling sector in depth earlier this month. Read the feature here.

Issue Date: 26 Sep 2013