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Bookmaker Shares Up in United Kingdom

Written by:
Jagajeet Chiba
Published on:
Mar/11/2009
Ladbrokes

Director buying and hopes it will clean up at the Cheltenham Racing Festival this week helped bookie Ladbrokes canter 6p forward to 180½p, according to the Daily Mail Market Report published on Tuesday. Rival William Hill closed lengths ahead at 231¼p, up 11.2p. A Shore Capital recommendation helped Paddy Power put on €0.35 at €12.36.

Just three weeks ago, Ladbrokes reported that total bets minus payouts, was up 11.1 percent. The group also claimed the gaming sector is resilient in the face of a downturn and says its business is still doing well. Ladbrokes is a much more diversified business than a few years ago when almost all of its bets involved horses and greyhounds. It is cautiously building an overseas presence in markets including Belgium, Italy, Spain and China and its management team is well regarded.

William Hill reported last week that it had resolved short-term funding uncertainties with its cash call and new debt facilities.

"The business model remains sound, the financial structure has been resolved, the regulatory outlook looks benign and the valuation using pro forma numbers and the TERP [theoretical ex-rights price] is attractive," claims analyst Mark Reed.

The broker expressed mild dismay at the cost of the debt (e.g. fees of 2.1%) under the new arrangement, and the length of the new arrangement (two years, not five) but stressed that the main thing is that the refinancing has been completed, enabling the company's management to focus on growth.

Teathers highlights three points which suggest William Hill is "edging towards a growth story".

First, there has been no sign, as yet, of a slow-down in any of the core business decisions, despite unhelpful economic trends, such as rising unemployment.

Second, William Hill Online "looks primed for strong growth" with the Sportsbook currently trading at 20% or more above the previous year's levels.

Third, Teathers expects the group to "pull out of Spain at a nominal cost and more actively churn the UK estate."

Jagajeet Chiba, Gambling911.com

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