Ladbrokes needs casino to deliver
The bookmaker returned to growth in Q3, but the market remains unconvinced as casino revenues flattered to deceive
Ladbrokes’ Q3 results disclosure last week might have shown a return to growth for the bookmaker, but the market remains unconvinced after its online casino continued to underperform.
Online revenue jumped 46% year-on-year, however this was largely driven by the firm’s sportsbook and international businesses with gaming up just 1.4% year-on-year and online casino down 2.6% despite a weak comparative period.
And while Ladbrokes’ sportsbook may indeed be performing well, the company needs other verticals to demonstrate similar rates of growth if investors are to start believing in its return to growth.
Shares in the company have fallen since the results were published last Thursday, with Ladbrokes’ share price dropping to 117.6p by Thursday afternoon and currently standing at 116.3p.
But speaking to analysts last week, Ladbrokes CFO Ian Bull said that gaming’s performance – up just 1.4% year-on-year – was precisely what the operator was expecting.
“We’ve always said Q3 has been hopefully back to flat, and then Q4 you [will] really see the growth coming through on gaming,” Bull said with the firm still feeling the hangover of the extended Playtech migration.
Due to the exclusivity of Ladbrokes’ contract with previous supplier Microgaming, casino products could not be migrated over to Playtech’s solution until its deal with MGS had expired, which led Ladbrokes to prioritise other verticals in the meantime.
“I think that we’ve got to keep on stressing the fact that digital casino only transferred just prior to the World Cup with the IMS full capability. Sportsbook was the focus during the World Cup, so casino growth has really only been the focus since then,” Richard Glynn, Ladbrokes CEO, said.
Back to black
Glynn added that the group had reached a “turning point” in its digital casino business now that it had put six consecutive quarters of decline behind it to post growth of 7% sequentially in Q3.
Ladbrokes’ games products transferred over to Playtech’s IMS backend far earlier in the year, and revenue from games increased by 30.6% year-on-year, and 20% sequentially, evidence of what Glynn said were the benefits of having “the brands, the products and the capabilities working together”.
Glynn said that Ladbrokes had finished the “heavy lifting” of its major platform migration that has taken the best part of 18 months to conclude and would now focus on delivering other innovations with Playtech, Openbet and Mobenga across its entire product suite with cross-selling opportunities understood to be an area of substantial interest for the firm.
“There’s much to do and there’s a big opportunity for us, but we’re increasingly confident that we’ve the right assets to compete and drive meaningful growth through 2015,” Glynn said.
Returning Ladbrokes to growth is a significant milestone for Glynn and may just allay some of the doubts regarding his position over the last 12 months, but gaming must show stronger growth with the introduction of PoC tax looming large.
The market obviously remains unconvinced and, at 116.3p, the share price is a long way away from the 280p benchmark Glynn was set by his board when he arrived from Sporting Index in 2010.
And reviving its flagging gaming business now must be his key focus, with a return to growth after six quarters of decline and sequential growth of 12% and a strong performance from Games signs of some genuine positive momentum.
But the market will wait until the release of the bookmaker’s Q4 figures in February before giving both Ladbrokes and Glynn any indication that it is satisfied.