Broker snap: Jefferies downgrades Ladbrokes on online, digital concerns

8th Oct 2013 11:11

High Street bookie Ladbrokes was in the red on Tuesday morning after Jefferies downgraded its stance on the stock from 'buy' to 'hold, raising concerns about the online business and the future of the dividend.The broker cut its target price for the shares from 230p to 170p.The firm said last month that it would be maintaining its dividend at the same level as last year after saying it has "yet to see discernible improvements" in Digital.Jefferies said: "With no material online earnings and almost all profit derived from a low-growth (cash-generative) retail business, a low valuation multiple is appropriate. There is little prospect of an uplift until 3Q14E. With c11p of earnings in each of the next three years, it is easy to construct a valuation well below the current share price. We do see some hope, but uncertainty remains."The broker said that while Ladbrokes robustly rebuts any talk of a dividend cut, after three profit warnings confidence in company guidance has begun to erode and any further "wobble" in Digital could jeopardise the current level of dividend.Jefferies said that failed acquisitions, sub-scale purchases and execution disruption has "materially undermined" Ladbrokes' competitive position online. While the firm is in the middle of a multi-year transformation, the broker said that Digital earnings have "all but evaporat[ed]"."Other have fared far better in the growing online market and we worry that Ladbrokes may have missed the boat, especially when the Point of Consumption tax is introduced. The real question is whether Ladbrokes will be in a position to capitalise on any market share opportunities once gross profit tax is introduced in 13 months' time. A strong brand and enhanced distribution (Playtech) both require quality product, which is not yet evident."The stock was down 0.47% at 168.5p by mid-morning on Tuesday.BC