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Monday, April 15, 2013

Betfair boosted by bid approach but Ladbrokes loses ground after profit warning

Private equity group CVC confirms interest in betting exchange while Ladbrokes pays out on Cheltenham favourites

Some excitement in the betting world, with Betfair facing a possible £800m bid and Ladbrokes warning on profits, partly due to paying out on favourites at the recent Cheltenham festival.

Online betting exchange Betfair has jumped 76p to 775.5p, up more than 10%, after confirmation of weekend reports that private equity firm CVC Capital was considering an offer. CVC said it had held preliminary talks with possible partners including investor Richard Koch, who holds 6.5% of Betfair, but said there was no guarantee an offer would be made.

Betfair, which has been losing market share in the UK and recently announced it was pulling out of Germany and Greece, advised shareholders to take no action. Chairman Gerald Corbett said:

With our new team now in place and the announcement of a more focused strategy in December, I believe Betfair is currently going through one of the most exciting phases in its development.

Nick Batram at Peel Hunt issued a hold recommendation on Betfair shares, saying:

The interest from CVC looks like good opportunistic timing but whether a full bid will materialise is difficult to say at this stage. However, it could well provide a catalyst for either others to look at Betfair or lead management to take a different strategic route [such as acquisitions or mergers]. Either of these outcomes should be positive for shareholders.

Putting a value to the group is difficult at this stage given the uncertainties surrounding the impact from exiting unregulated markets, the extent of the cost savings and the success or not of building a fixed odds sportsbook. Some may be tempted to look back at the IPO price (£13) as a target but that looks too ambitious. However, there should be relatively little downside from here and we still expect Betfair to ultimately deliver.

Meanwhile Ladbrokes has lost 15.7p to 191.2p after it warned in an unscheduled update that annual profits would be at the bottom end of forecasts. That indicates a total of around £188m compared to £206m last year, dashing hopes the company was over the worst after problems with its online business. It said first quarter operating profits fell £13m to £37.4m. It made £6m less revenue from Cheltenham and saw a £9m increase in like for like costs and machine taxation. Greg Johnson at Shore Capital said:

Overall, we see the statement as odd given bookies success at the Grand National and continued volatile football results. With retail trading flat at best and limited momentum online, Ladbrokes appears much more at the risk of sporting results than its closest peer William Hill, which continues to demonstrate significant customer momentum, especially with online accounting for half of group profits.

We would see fair value down to 170p-180p per share which would assume little for a recovery in the online operation.


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