The Investment Column : Acquisitive Ladbroke back in the frame as a good bet
Tuesday 04 February 1997
Yesterday's brace of announcements saw the gaming division snap up AR Dennis, the 114-strong London betting shop chain, for pounds 31.3m and finally settle a dispute with Sainsbury over the price at which Ladbroke sold the Texas Homecare chain to the supermarket group.
The betting shops deal takes Ladbroke to a total of 1,925 outlets, comfortably ahead of its biggest rival, William Hill, provides plenty of scope to improve Dennis's below-average margins and should be earnings-enhancing from the word go.
Importantly it strengthens the betting arm into an upswing in the operation's fortunes just as the industry is getting to grips with the problems, mainly caused by the introduction of the lottery, of 1995.
Bookies have cut their cost bases and introduced a new range of products, from betting on the Irish lottery to gambling on sports other than horse racing, that make them much more viable, even in the face of the new midweek lottery which is due to be launched tomorrow. Dennis is a good fit for Ladbroke with only three shops having to be sold to satisfy the OFT.
Elsewhere, the arbitrator's decision that Ladbroke should only hand back to Sainsbury pounds 9.3m of the pounds 290m it was paid for Texas in 1995 was a better result than anyone at Ladbroke could have hoped for and a great deal worse than the figure the supermarket had unwisely tipped analysts. That was the most important factor in yesterday's 4p share price rise to 233p.
Possibly of more investment importance in the short run, however, will be the credence given to weekend stories that ITT might be considering a bid for Ladbroke as part of its defence against the recent hostile tilt from Hilton Hotels Corporation, with which Ladbroke recently struck a historic alliance. Analysts are sceptical about such a bid emerging but point out that, in what is expected to be a feisty defence, anything from ITT is possible.
What that doesn't achieve short term, forecasts of profits of pounds 170m for the year to December 1996 and pounds 215m this time should do in the longer run.
Achieving those numbers would put the shares on a prospective price/earnings ratio of 17, not too demanding compared with a growth rate in the mid- 20 per cent range.
Deregulation is boosting the betting side, hotels are still enjoying a strong cyclical upswing and the shares remain good value.
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