Investment Column: Ladbrokes looks a good bet despite worries over acquisition strategies

Centamin Egypt; Netplay TV

Our view: Buy

Share price: 120.8P (+1.1P)



When it comes to mergers and acquisitions Ladbrokes is starting to look a bit like the Grand Old Duke of York; the bookmaker marches its way to the top of the hill then marches back down again.

First it was 888 Holdings and more recently Sportingbet. The latter proposal fell apart earlier this week on legacy issues related to Sportingbet's business in Turkey. Legacy issues also played a part when it came to the first 888 proposal in 2007 (more recent talks this year collapsed owing to disagreements over price), which does make one wonder why so much effort was expended on either.

Now management has a job on its hands; shares have not exactly been singing and investors must be convinced that the company has a solid strategy in place, particularly given the relative health of its chief rival, William Hill. And several analysts have recently been raising pointed questions.

That said, the forthcoming third-quarter results should look reasonably good, with fixed-odds betting terminals still filling the coffers (notwithstanding increases in VAT and duty) and sporting results looking favourable.

While the big boys at the top of the Premiership have been winning, the number of draws generally have been higher compared with this time last year (29 per cent compared with 26 per cent), which favours bookies. And horse racing results don't appear to have been hugely punter-friendly.

What's more, Ladbrokes's shares are starting to look very cheap. They trade on multiples of just above eight times full-year earnings, which looks far too low even in light of the grim economic backdrop. Moreover, the prospective yield is above 6.5 per cent, and doesn't look under much threat.

This offers value compared with William Hill, although the latter no longer has the management problems that worry analysts about Ladbrokes.

In general, we prefer Hills. But we think both bookies are too cheap compared with the likes of Betfair, for example, which trades on multiples that are almost double. In February we said hold at 139.5p. Take the price fall as a buying opportunity.

Centamin Egypt

Our view: Buy

Share price: 98P (+2.65P)

With gold in such heavy demand as a safe haven, you'd think a gold mining company like Centamin would be having a grand old time. But, while the gold price is up about 18 per cent so far this year (even after falling about 16 per cent since the start of September), the FTSE 250-listed company's shares are down more than 40 per cent.

The clue to the disparity is in the company's full name – Centamin Egypt. The miner, whose main asset is the Sukari gold project in Egypt, substantially cut its production forecast for the year in August because of restrictions imposed upon it by local blast inspectors in the second quarter.

The inspectors, who issue explosives and need to be present when a miner blows up the rocks, clamped down on their use in the wake of the uprising against the former regime of Hosni Mubarak. However, Centamin cheered the market yesterday with news that operations had returned to normal, putting the group on course to achieve its revised production target for the year of between 200,000 and 210,000 ounces of gold.

This may be well below its original forecast of 250,000 to 290,000 ounces, but it shows that Centamin is back on track in a gold market where the price is likely to remain high for some time to come. This makes the shares well worth a punt.

Netplay TV

Our view: BUY

Share price: 9.5P (+0.38P)

We decided to hold onto Netplay in April. Back then shares in the business, which offers gaming services via the TV and is growing its reach in the mobile market after launching an iPhone application in last year, was changing hands at 8.88p. We decided against buying as we wanted to see more signs of progress after the company issued what we viewed as an encouraging update.

Yesterday, we saw them. The third-quarter trading statement showed that Netplay had managed to increase new casino players by 57.3 per cent, while boosting the number of active casino players by nearly 45 per cent. It also said that it anticipated full-year trading to be "ahead of" market hopes.

The figures and the prediction soon prompted a lot of positive analyst reaction. Forecasts were upgraded and buy recommendations were reiterated. All that is good. But what really caught our eye was the valuation.

Although it is performing well, and despite the share price rise since April, Netplay is trading on a multiple of 4.7 times enterprise value to earnings before interest, tax, depreciation and amortisation. That is based on consensus estimates and falls to 3.6 times on the forecasts for next year. The market is not giving credit where it is clearly due. Time to buy.

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