Investors are betting the worst is over for Ladbrokes (LAD) as it rises 2.4% to 154.6p despite very poor full-year results. Group operating profit is down by a third to £138.3 million. There's no growth in the dividend. And 2014 has got off to a poor start.

Yet there are a few positive points. Ladbrokes is ahead of expectations with cash generation, net debt is lower and analysts note positive comments from the bookmaker on the launch of its new mobile and desktop sports products.

Investors with an appetite for risk always flock to shares when everything seems at its worst, in the hope of buying at a depressed price ahead of the recovery. But we've been here before with Ladbrokes. Many investors last year bought into the stock as a turnaround story, fueled by hope that a new technology system from Playtech (PTEC) would solve the long-running underperformance from its digital arm.

Three profit warnings in 2013 contributed to one of its worst ever years on the stockmarket. Today, chief executive officer Richard Glynn seeks to look to the future saying: 'H1 is about delivery and H2 is about growth.'

Investec reiterates previous concerns that Ladbrokes will struggle to complete full platform migration to the new Playtech system ahead of the World Cup. 'This could limit customer acquisition opportunities and add risk to the group meeting already cautious FY14 estimates (we forecast +7% EBIT y-o-y),' says Investec analyst James Hollins.

Although there's no growth in the dividend, the fact that Ladbrokes hasn't cut the shareholder reward is a possible reason behind today's positive market reaction to the results. It has committed to pay at least 8.9p in dividends in 2014 – the same as 2012 and 2013 – which puts the shares on a prospective 5.8% dividend yield.

Canaccord Genuity lowers its price target from 190p to 162p. It reckons investors can afford to wait for the digital turnaround, given the high dividend yield. Panmure Gordon reiterates its 'sell' rating and 135p price target. It says earnings visibility remains poor, adding: 'Given the increasing levels of competition in the UK online market and uncertainty lingering over the UK retail estate, particularly fixed odds betting terminals (FOBTs), we believe Ladbrokes remains unattractive relative to closest peer William Hill.'

We turned negative on bookmakers with land-based operations in mid January because of the potential shake-up in taxes and betting laws. The issues are explained in this article.

Issue Date: 25 Feb 2014