Shareholders in Ladbrokes (LAD) are breathing a collective sigh of relief as the bookmaker reveals encouraging progress in its plan to aggressively grow its digital sports betting business.

Revenue in the digital division is up 6.4% in the three months to 30 September, boosting the shares by 4.7% to 105.8p.

LADBROKES - Comparison Line Chart (Rebased to first)

Group EBIT (earnings before interest and tax) is down 57% to £14.3 million, in line with expectations, due to tough comparatives from last year's football World Cup, higher taxes and increased marketing spend in the digital division.

Retail over-the-counter staking is up by 3.5%, having fallen by 3.6% in the first half, while sportsbook staking in the digital division is 34.1% higher.

These gains have been overshadowed by weaker sports margins – down by 1.5% to 15.5% in retail and down 2.1% to 6.8% in This reflects weak horse racing results in September and tough football comparatives.

Ladbrokes’ recovery plan, announced in July, is designed to jump start growth in 2017 but the real performance boost is expected to be its merger with Gala Coral.

‘We view the deal as a significant potential positive catalyst for Ladbrokes shares (giving Ladbrokes necessary scale in Digital, and driving cost synergies in Retail), although completion is not expected until mid-2016,’ says Canaccord Genuity analyst Simon Davies.

Canaccord Genuity’s target price is 123p, implying 16% upside.

Issue Date: 22 Oct 2015