City gambles on Ladbroke bid

THE INVESTMENT COLUMN

No one will be too worried by yesterday's pretty dismal figures from Ladbroke, the Hilton hotels to Vernons pools to betting shops group. The real investment interest in the company lies in guessing if a bid is on the way, who will make it and what they will be prepared to pay.

If it doesn't materialise, attention will focus on whether the company can stitch up a deal with Hilton Hotels Corporation, which owns the US hotels. Under new boss Steve Bollenbach the American business is known to be keen to forge at the very least a world-wide marketing link with the international arm it now regrets selling off.

Chief executive Peter George has done a reasonable job in clearing up the mess left by his predecessors, selling Texas Homecare to Sainsbury and winding down the ill-conceived property portfolio, but many of the problems he faces at Ladbroke are out of his control.

Profits for the year to December of pounds 121.3m were bang in line with expectations, pounds 7.2m below 1994's pre-exceptional number and, as forecast, clobbered by the impact of the National Lottery on the betting side. Earnings per share of 7.46p, again before exceptionals, only just covered an unchanged dividend of 6p.

Last year really was a game of two halves for Ladbroke. The Hilton hotels business moved nicely ahead from pounds 126.8m to pounds 150.2m with occupancy edging ahead from 66.8 per cent to 69 per cent, driven by the buoyant London market. It was a nice cushion, but not enough to make up for a disastrous 12 months for gaming and betting.

There were problems across the division, with retail betting and Vernons suffering from the introduction of scratch cards, credit betting (accounts for overseas high-rollers) slumping after a strong 1994 and profits in America failing to keep up with rising sales. Overall the division saw profits collapse from pounds 97.7m to pounds 58.1m.

Elsewhere in the group, profits from the property portfolio were sharply reduced from pounds 32m to pounds 23m as buildings are gradually disposed of. That unhappy adventure should be history within a couple of years.

So what is Ladbroke really worth? Break-up valuations of more than 200p have been touted which provides some support if you believe a bid from, say, Bass or Whitbread is a possibility. If not, analysts believe some sort of marketing deal with Hilton Corp underpins the current share price, even if on a prospective price/earnings ratio of about 20 the shares, down 0.5p at 183.5p, are expensive on fundamental measures. Hold on for the inevitable developments.

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