Ladbrokes had previously been in negotiations with GVC during the summer. However, on that occasion, discussions collapsed because of disagreements over the value of the companies.

Now, as the UK government’s ongoing regulatory review continues to cast a shadow over the gambling sector, it would appear that Ladbrokes’ management is keen to get a deal done. 

According to today’s press release, Ladbrokes stockholders are likely to be offered cash and shares equal to 160.9p a share, plus an uplift worth up to 42.8p a share depending on the outcome of the UK government’s ongoing regulatory review.

A great deal for all parties 

A merger between Ladbrokes, which has a sizeable high-street presence and GVC, which is predominately online-based, is in the best interest of all parties. 

GVC has been building up its online gaming empire for the past decade, but Ladbrokes has struggled in this area and is still heavily reliant on its high street operations. The outlook for these outlets is unclear pending the outcome of the government review of fixed-odds betting terminals. Ladbrokes’ fixed-odds high stakes machines deliver a majority of its retail revenues. 

Part of GVC’s offer is conditional on the outcome of the government review. It is offering a fixed price of 160.9p per share plus as much as 42.8p if there’s no change to the regulations. This conditional element is calculated on a sliding scale: if the maximum stake is dropped from £100 to £2, shareholders will receive no extra cash. If the maximum stake is cut to only £50 from £100, shareholders are set to receive the maximum distribution. 

By combining, the two would be better placed to withstand any changes brought in by the government. The enlarged entity would be “an online-led, globally-positioned betting and gaming business that would benefit from a multi-brand, multi-channel strategy applied across some of the strongest brands in the sector.” 

So the deal will give, Ladbrokes’ investors access to a globally diversified digital gaming business while GVC can expand onto the UK high street. 

The next stage of growth 

This merger is just the latest in a string of deals completed by GVC over the past decade. The company has used the cash generated from its leading online operation to expand into other markets with colossal success. 

Since 2012 pre-tax profit has exploded from €10m to €210m (forecast for 2017). At the same time, shares in the firm have produced a total annual return for investors of more than 42% per annum including dividends. 

Considering the acquisition record, it looks to me as if this is a great deal for all parties and it should enable the firm to continue to generate market-beating returns for investors for many years to come. 

The post Why the GVC Holdings plc/Ladbrokes Coral Group plc merger makes sense appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GVC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Wanna bet?

It is slipping back today following publication of its trading update for the four months to 29 October. The share price is down 2% despite a small rise in group revenues and strong growth in its digital and European divisions, with its UK retail business continuing to decline. 

Group net revenue rose 3%, or 2% at constant currency, following a 2% drop in the second quarter. The standout figure was a 17% rise in European retail net revenue, or 12% at constant currency. Digital net revenue also lifted, rising 12%, with Sportsbook net revenue up a hefty 18% and Gaming net revenue up 6%. This was offset by a 1% drop in UK retail net revenues.

What are the odds?

Ladbrokes Coral CEO Jim Mullen hailed a positive trading performance, with solid delivery on key operational and financial targets including the swift integration of people, operations and platforms following the recent merger. He added that the Ladbrokes brand in Australia and the Eurobet brand in Italy should continue to post “very strong revenue growth”. 

The regulatory review on fixed-odds betting terminals remains a threat. Analysts reckon £20 or anything above that will be good news, while £2 could trigger hundreds of shop closures and a share price shock. 

City forecasts remain bullish, however. After four years of negative earnings per share (EPS) growth, analysts are pencilling in 76% in 2017 and 34% in 2018. The yield is forecast to rise from today’s 2.2% (with healthy cover of 2.2) to a juicy 4.8% over the same period. Ultimately, dividends are the things make you rich.

Ladbrokes Coral looks cheap at its forecast valuation of 11.1 times earnings, but beware that fixed odds decision. We should find out whether the group is a winner or loser on 23 January.

Power play

Rival Paddy Power Betfair (LSE: PPB) is also on a winning streak, its share price up 18% in the last three months. I have been sceptical about the stock before, and remain unconvinced today, due to its combination of hefty valuation and poor share price performance. It still trades at around 25 times earnings, despite being 5% lower than a year ago.

However, it is growing earnings faster than Ladbrokes Coral, with latest figures showing Q3 revenues up 9% to £440m, driven by 11% growth in sports revenue.

Crackdown

Stakes growth has been strong even without a major football tournament and next year it should migrate its customers to a new integrated platform, which should improve efficiency and the customer proposition. Paddy Power also enjoys optimistic EPS forecasts of 15% and 14% in 2017 and 2018 respectively, when the yield should rise to 2.5%.

The group has far less to fear from the crack cocaine crackdown due to its greater sports, digital and international exposure, with revenue from betting shops totalling just £85m. Outgoing CEO Breon Corcoran has even backed a clampdown and called for the stake to be cut to £10, which shows confidence. Paddy Power could prove a solid bet.

The post These 2 racy growth stocks could make you stunningly rich appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

To recap, last Tuesday the company revealed that it had agreed new credit facilities and deferrals on some of its debt repayments. In addition to this, the £200m cap announced the sale of most of its UK healthcare business to outsourcer Serco — a business that’s also had its fair share of problems over the last few years — for just over £50m.

Is this sufficient? Hardly. Let’s not forget that the small-cap booked an £845m writedown of construction contracts back in July. Tackling the amount of debt on the company’s books will take a while, during which time loyal holders of its stock won’t get so much as a sniff of a dividend. When you’re not even being paid to be patient, you really have to question whether a business is truly investable. 

Yesterday’s announcement that the company had recruited ex-BAE Systems executive Andrew Davies as its new CEO may have been welcomed by market participants, but few would disagree that he faces an unenviable series of tasks when he officially takes up his new role next April. These include continuing to dispose of Carillion’s assets, attempting to recoup money from historic contracts and overseeing a likely share placement.

These facts, when coupled with the hugely unpredictable share price at the current time, suggest that the Wolverhampton-based firm should only appeal to traders or speculators and not those adopting the Foolish investment philosophy of buying quality companies at reasonable prices and holding them for the long term. 

Carillion’s turnaround plan may have started, but I’m more than content to watch from the sidelines.

Troubled times ahead?

Despite the general resilience of the gambling industry during uncertain economic times and a recent rise in operating profit, another stock I wouldn’t go near right now would be bookmaker Ladbrokes Coral (LSE: LCL). Like Carillion, the newly-merged company carries a lot of debt on its balance sheet. Moreover, the sheer amount of competition it faces from other established high street players and online gaming companies ensures the amount of money spent on marketing and promotions must remain stubbornly high.

But high levels of debt and a hyper-competitive market aren’t the only problems for Ladbrokes Coral right now. New legislation on fixed odds betting terminals could soon have a huge impact on the company’s level of profitability, more so than other bookmakers such as FTSE 100 constituent Paddy Power Betfair, which has a smaller high street presence. Should the government agree to drastically reduce the maximum permitted stake on FOBTs from £100 to £2, as suggested by the Campaign for Fairer Gambling, it doesn’t feel completely unreasonable to suggest that the £2.4bn cap may need to quickly re-evaluate its dividend policy.

With so much uncertainty, I believe investors may better off waiting for the outcome of the government’s triennial review (due any day) before deciding whether the shares are a safe bet. A P/E of 10 times is undeniably tempting but I would suggest that the shares are cheap for a reason.

The post Carillion plc isn’t the only value trap I’d avoid right now appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Similarly, a new structure either through reorganisation or merger can create uncertainty. However, this increased risk can mean a company’s shares offer a wider margin of safety. As such, for long-term investors there can be investment opportunities at times of change within a company. With that in mind, these two stocks could be worth buying today.

Management change

Announcing news of a change in its management structure on Monday was Jackpotjoy (LSE: JPJ). The world’s largest online bingo-led gaming operator released a statement to say that its CEO Andy McIver will step down from his position.

The reasons given for the change is that the company is seeking to strengthen its operational focus and that it has appointed several highly experienced divisional managing directors. As such, current Chairman Neil Goulden will become Executive Chairman. Additional operational expertise will be provided by Group Managing Director Simon Wykes.

Looking ahead, Jackpotjoy is expected to post a rise in its bottom line of 10% in the next financial year. It trades on a price-to-earnings growth (PEG) ratio of just 0.7 and with a great deal of sector consolidation taking place at the present time, a bid approach would not be a major surprise. With such a large margin of safety and a strong position within its key markets, the company appears to offer investment potential for the long run

Merger potential

Having undergone a merger just under a year ago, Ladbrokes Coral (LSE: LCL) is apparently mulling a merger with sector peer GVC. Whether this goes ahead or not, the original Ladbrokes and Coral merger caused significant costs last year and many investors seem unsure as to whether the rationale for the combination is strong enough to support significant future profit growth. Evidence of this can be seen in its 6% share price fall during the last year.

However, with the company forecast to post a rise in its bottom line of 77% in the current year and a further increase of 34% next year, it seems to have high growth potential. As well as this, it trades on a PEG ratio of only 0.3 at the present time. This suggests that it has a wide margin of safety that could improve its risk/reward ratio for the long run.

Ladbrokes Coral also appears to have income appeal. It is forecast to yield 5.1% from a dividend that is covered 2.4 times by profit. As such, with a mix of dividend, growth and value appeal it could be a top performer for the long run.

The post 2 growth stocks I’d buy and hold for the next decade appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Synergies

Progress with the integration of the two bookmakers is going better than many analysts had expected, with the merged group on course to generate £150m in annual synergies by 2019, more than double the group’s original estimate. And on the back of these upbeat expectations, the group doubled its interim dividend from 1p per share, to 2p per share.

As I write, Ladbrokes Coral shares are trading at about 117p, which puts the stock on a 2017 forward P/E of 9.8, and gives it a prospective dividend yield of 3.9%. This indicates that it offers very good value for money, with the average UK-listed company trading at 14.1 times forward earnings and expected to yield just 2.8%.

Retail decline

However, looking ahead, the declining profitability of its shop estate could be a cause for concern. In the past six months, revenues from the group’s UK retail operations fell by 6% with a 7% decline in comparable over-the-counter wagering. Retail gaming revenues seem to be on a long-term structural decline, and still account for roughly two-thirds of the group’s revenues. There is also regulatory uncertainty ahead, with the proposed reduction in the maximum stake on fixed-odds betting terminals being the biggest worry.

Nevertheless, in my view, the market has already priced-in most of these risks. Instead, I believe investors are not fully appreciating the size and scale advantages of the merged group. As such, with modest near-term earnings growth and a re-rating of the stock, I reckon Ladbrokes Coral could offer significant total returns to its shareholders.

Double-digit growth

Also reporting its first-half results on Thursday was logistics and supply chain solutions company Eddie Stobart (LSE: ESL). The firm, which was spun-off from Stobart Group in 2014, reported double-digit growth in revenues and operating profits during the first half of the year.

The company’s underlying revenues increased by 13% to £286.8m from £253.6m in the same period last year. Meanwhile, underlying earnings before interest and tax rose 14% to £16.9m, on the back of margin improvement and new business growth.

Going forward, management expects full-year results to be in line with market expectations, following an encouraging start to the second half. The group is on the lookout for new acquisitions to drive continued earnings growth, and is keen to use its acquisition-led strategy to leverage cross-selling opportunities, implement synergies and strengthen its service offering.

The company’s low valuation and attractive yield make the stock seem to me like a tempting buy. Eddie Stobart trades at just 14.6 times expected earnings in 2017 and has a prospective dividend yield of 3.5%.

The post 2 income-and-growth stocks for shrewd investors appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The hedge fund manager declared that funds under management registered at $95.9bn between January and June, surging from $80.9bn at the close of 2016. Man Group continued to benefit from robust client activity, with net inflows of $8.2bn galloping from $1bn during the corresponding period last year.

As a result, adjusted pre-tax profit exploded 48% year-on-year to $145m. And this encouraged the company to lift the interim dividend to 5 US cents per share from 4.5 cents in 2016.

Commenting on the results, chief executive Luke Ellis said: “We saw strong inflows from clients during the half and a 19% increase in funds under management with growth across all our investment managers. However our revenue margin has compressed during the half as we have won several large, low-margin mandates, meaning our management fees have grown at a much steadier pace.

But he also said that the first half was unusual in both the scale of net inflows, and the level of margin compression. He expects both to moderate in the second half, particularly given the uneven nature of institutional flows. 

Man up

Despite the cautious assessment, City brokers believe Man Group should prove a lucrative stock for both growth and income hunters during the medium term at least.

The London business is expected to recover from recent heavy earnings dips with rises of 42% and 31% in 2017 and 2018 respectively. And current projections make it brilliant value for money — not only does the company carry a forward P/E ratio of just 14.7 times, but a sub-1 PEG readout of 0.4 underlines its great value.

The financial giant also trumps much of the competition in the dividend stakes. A predicted reward of 10 US cents per share this year creates a massive 4.5% yield. And an estimated 11.2-cent dividend for 2018 drives the yield to 5.1%.

Bet on this beauty

Betting behemoth Ladbrokes Coral Group (LSE: LCL) is another stock expected to remain a lucrative all-rounder for some time yet.

For 2017 the calculator bashers expect the FTSE 250 giant to generate earnings growth of 73%, and to follow this up with a 27% rise next year.

And recent estimates provide plenty of bang for investors’ buck. Not only does Ladbrokes boast a prospective P/E earnings multiple of 11.1 times, but its PEG reading for this year rings in at a mere 0.2.

There is much for dividend-hungry stock selectors to shout about too. An expected 4.9p per share dividend in 2017 yields a meaty 3.9%. In addition, the 6.6p reward predicted for next year drives the yield to 5.2%.

Synergies from the Coral merger continue to run ahead of schedule, and the business upgraded its target to £150m by 2019 back in June, the second upgrade in recent months and soaring above the original guidance of £65m. And with Digital net revenues also continuing to explode (these shot 17% higher during January-June), I believe there is plenty for share selectors to get excited about.

The post 2 great growth and dividend stocks for shrewd investors appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I’m going to look at two potential choices, starting with supermarket group Wm Morrison Supermarkets (LSE: MRW) whose sales rose by 2.8% during the first quarter.

A solid performance

Morrison’s like-for-like (LFL) sales excluding fuel rose by 3.4% during the first quarter. Total sales growth excluding fuel was lower, at 2.8%, as a result of last year’s store closures.

The group says that inflation played some part in pushing up sales revenue, due to higher prices. However, today’s statement confirmed that “LFL volume was again positive”. This means that Morrison is selling more goods than it did one year ago from the same stores.

That’s good news for shareholders. My only slight concern is that the firm didn’t provide a breakdown of the split between sales growth and inflation-led price growth. So it’s hard to be sure how much of the group’s LFL sales growth is down to increased volumes.

Inflation-beating income?

Morrison’s stock still looks quite fully priced, on a forecast P/E of 19.4 and with a prospective yield of 2.5%. However, the group’s dividend was covered by both earnings and free cash flow last year, which also saw net debt fall from £1.7bn to just £1.2bn.

Dividend growth of 17% is forecast for 2017/18, with an 8.5% increase pencilled-in for 2018/19.

I believe there’s considerable scope for Morrison’s dividend to grow ahead of inflation over the coming years. It might be worth accepting a lower yield now in order to benefit from future dividend growth.

This could be profitable

Newly-merged Ladbrokes Coral Group (LSE: LCL) has combined two of Britain’s best-known high street bookmakers. This deal creates two big opportunities, in my view. The first is that the combined group should benefit from a larger-scale platform for online growth. The second is the chance to cut costs and combine operations on the high street.

Today’s first-quarter update suggests to me that both of these opportunities will play an important role in the firm’s future. Although the group’s total net revenue rose by 5%, retail revenue from the firm’s UK stores fell by 2% during the quarter. This fall was offset by a 22% increase in online revenue, highlighting the importance of this sector.

Jim Mullen, Ladbrokes Coral’s chief executive said that overall trading for the first quarter was in line with expectations. That puts the stock on a forecast P/E of 11 for this year, with a prospective yield of 3.7%.

I believe this stock could offer a decent opportunity for income seekers willing to accept some risk. While Ladbrokes Coral needs to repay some of the £1.1bn net debt resulting from the merger, the group has historically been fairly cash generative. I think management should be able to offset high street declines by focusing on providing an improved, digital-led service to its customers.

If I’m right, then Ladbrokes Coral could offer a decent long-term income opportunity.

The post Why these dividend stocks could help fund your retirement appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The recruitment specialist has seen the bottom line swell at a compound annual growth rate of 34.1% since it returned to earnings growth back in 2013. And the City does not expect earnings to backtrack any time soon, with expansion of 3% and 13% forecast for 2017 and 2018 respectively.

And I reckon a consequent forward P/E ratio of 15.7 times makes Robert Walters exceptional value at current prices.

Global great

Indeed, investors can look forward to profits exploding at the London-based business if the company’s knockout first-quarter release is anything to go by. Net fee income (at constant currencies) at Robert Walters surged 20% between January-March, the fastest rate of growth for almost six years.

This clocked in at a record £78.3m for the period, the company enjoying a 10% improvement in Asian net fee income thanks to strength in Vietnam and Indonesia.

But Robert Walters did not just enjoy resplendent growth in its single largest market. In the UK, net fee income rose 27% thanks to “a notable upturn in financial services recruitment activity in London plus good performances in legal recruitment and the UK regions.” And in Europe, strong performances in Germany, France, Spain and the Netherlands helped aggregated net fee income surge 25%.

So while trading conditions at home may become tougher as Brexit forces the banking industry to relocate en masse, Robert Walters’ broad presence across the globe (its other geographic locations also includes North America) should protect it from a loss of financial jobs abroad.

I reckon Robert Walters is in great shape to deliver stonking earnings growth long into the future.

A brilliant bet

Ladbrokes (LSE: LCL) has not proved to be a growth star like Robert Walters in recent years, the business having recorded four eye-watering earnings drops on the bounce. But the City believes the betting colossus is on the cusp of a stunning recovery.

Current projections suggest that Ladbrokes will record a 73% earnings bounce in 2017, and should follow this up with a 23% surge in the following 12-month period.

And such forecasts make the company a brilliant value pick, in my opinion — not only does a forward P/E ratio of 11.2 times indicate excellent value, but a PEG reading of 0.2 falls well below the bargain barometer of 1.

While Ladbrokes faces huge uncertainty from the government’s review into fixed odds betting terminals, I reckon the risks are more than factored-in at current share prices and that the company still provides plenty of upside.

Last year’s merger to create the UK’s largest high street bookmaker provides brilliant scale, while an increased emphasis on the online market provides plenty of revenue opportunities. Digital revenues were up 20% in the year to March 19, Ladbrokes noted last month.

On top of this, the massive cost synergies created by the deal (Ladbrokes upgraded its cost synergy target to £100m from £65m in March) also gives the bookies’ earnings picture an extra shot in the arm. I believe Ladbrokes could prove a great growth pick for the years ahead.

The post These 2 growth giants could make you Foolishly rich appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A transformational year

Paddy Power Betfair’s (LSE: PPB) performance in 2016 was impressive, given that it was a transformational year for the business. Its revenue increased by 18%, with double-digit growth across all of its four operating divisions. Underlying EBITDA (earnings before interest, tax, depreciation and amortisation) rose 35%, with the company’s EBITDA margin increasing to 26% from 22%. Furthermore, underlying operating profit and earnings per share were both 44% higher than the previous year.

However, perhaps of greater importance to the company’s investors was the progress made with the integration of the acquired business. That was completed sooner than anticipated and it also delivered greater efficiencies than expected. The integration of the technology platforms is on track and customers are already beginning to see the advantages of the new company’s size and scale. For example, more markets and better odds mean Paddy Power Betfair’s competitive advantage over rivals could be increased.

Growth prospects

In 2017 and 2018, the company is expected to grow its bottom line by 22% and 14% respectively. If it meets these forecasts and its P/E rating remains at the current level of around 25, its shares could move 39% higher by 2019. However, there seems to be scope for a significant upward re-rating during the same time period. The company’s historic average P/E ratio over the last four years is 37. If it were to trade on its average rating and meet its forecasts, its shares could move as much as 90%+ higher over the medium term.

Clearly, such a high growth rate may sound improbable. However, given the progress made with the integration and the success it has brought, it may lead to a lower risk profile for the business. While investors may have sought a discount to its intrinsic value as the integration process moves ahead, if it is successfully completed then it may lead to a higher valuation.

Rival growth

Of course, Paddy Power Betfair is not the only gaming company that has been the subject of merger activity. Ladbrokes Coral (LSE: LCL) may also see its rating rise in future years. And since it trades on a P/E ratio of just 17.5, there seems to be significant scope for this to take place. That’s especially the case since Ladbrokes Coral is forecast to record a rise in its bottom line of 64% in 2017 and 24% in 2018. Therefore, as well as having a lower valuation than its sector peer, it also has superior growth rates.

Clearly, the gaming industry is undergoing rapid change and consolidation is a key part of the industry outlook. Size and scale advantages seem to be present with both Paddy Power Betfair and Ladbrokes Coral. While both stocks have large upside, it is the latter which seems to be the better investment opportunity, owing to its lower valuation and higher earnings growth outlook.

The post This FTSE 100 growth stock could trade 90%+ higher by 2019 appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Decent form

Perhaps the biggest highlight from today’s update related to its digital offering. Given how vital it is for most companies — particularly those in the gambling industry — to provide customers with a quality online service, investors will be comforted by the 18% rise in net revenue during the last quarter (from the start of October to the end of December).  When looked at separately, net revenue from Ladbrokes.com was 17% up compared to last year. Coral’s equivalent revenue also rose, by 13%.

Elsewhere, multi-channel sign-ups across both companies “remained strong” with 140,000 customers signing up to the Connect card or Grid service. Given the benefits that come from geographical diversification, a 45% jump in net revenue from Ladbrokes in Australia was also very encouraging.  

It wasn’t all great news. UK net revenue dipped 4% compared to the same period in 2015. Like-for-like over-the-counter stakes also fell 5%. Nevertheless, full-year proforma operating profit at the group is now expected to be in the range of £275m-£285m, with Ladbrokes standalone operating profit around £101m and Coral Group standalone profit in the ballpark of £179m. The former is in line with the market consensus; the latter in line with management expectations. This compares favourably to operating profit of £235m in 2015.

Signing-off the update, CEO Jim Mullen hailed an “encouraging start” for the new company, even if “the sporting gods” did not give Ladbrokes Coral quite the results it was looking for in this trading period. 

Temptingly cheap? 

At the time of writing, shares in Ladbrokes trade on a price-to-earnings (P/E) ratio of just over 11 for 2017, based on a predicted 47% rise in earnings per share. Ordinarily, any stock releasing a fairly positive update on this valuation would seriously grab my attention. Not so much here.

While the gambling industry has shown itself to be rather resilient in times of economic uncertainty, there’s no escaping the fact that it remains susceptible to political meddling. Only last month, it was reported that a cross-party group of MPs were demanding that the maximum stakes on fixed odds betting terminals should be drastically reduced, from £100 to £2, to minimise the possibility of heavy losses and “societal harm“. Given the huge estate operated by Ladbrokes Coral, any new legislation announced by the government could have a massive impact on profits and see its shares plummet. Is that a risk worth taking? With so many other opportunities in the market, I’m not so sure.

Although not immune to developments in this hyper-competitive industry, I think peer GVC (LSE: GVC) — with its focus on online and mobile services to other businesses as well as punters — might be a better bet for those still drawn to gaming and betting stocks. Shares in the £1.8bn cap owner of brands such as Foxy Bingo and bwin have sprinted ahead of the competition over the last 12 months, rising 33%. With earnings per share expected to shoot up by over 70% this year, there could be more upside ahead. So long as this happens, a P/E of 12 for 2017 seems reasonable. A well-covered, forecast yield of over 4% is also likely to appeal to income-chasing investors. 

The post Why I won’t be backing Ladbrokes Coral Group plc despite its low P/E appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.