Ladbrokes has issued its third profit warning this year, heaping pressure on chief executive Richard Glynn and raising speculation the bookmaker could be vulnerable to a takeover bid.
The company blamed a weak performance in its online business as well as unfavourable football results for the shortfall. Its shares slumped nearly 8% on Thursday, dropping 14.3p to 173.8p making it the biggest faller in the FTSE 250.
Ladbrokes has been struggling to develop its digital division to attract the increasing numbers of gamblers betting via computers, mobiles and tablets. Earlier this year it decided to ditch its existing online systems and instead signed a five-year partnership agreement with Israeli software group Playtech, a former partner of rival William Hill. But the gambling group said that disruption and delays meant its online profits would fall well below market expectations. Full-year operating profits from the digital division would be between £10m and £14m, compared to City forecasts of around £28m. Part of the problem is that Ladbrokes has been running the two systems in parallel, amid tensions caused by a threat of redundancy hanging over about 200 of its London-based staff. Around 120 are ultimately expected to lose their jobs.
Glynn – who joined from Sporting Index three years ago and could receive a £12m bonus if the shares reach 297p – said: "Our digital earnings have been disappointing, reflecting a lack of competitiveness, lower margins than planned and a greater disruptive impact than expected from the transition necessary to grow digital for the long term."
On the high street, Ladbrokes said business had been picking up since a slowdown caused by the July heatwave. But it has been hit by a series of unfavourable football results, including most of the favourites winning in the recent Champions League round and 35% fewer draws in the Premier League so far compared to last year.
Glynn hopes to finish the online overhaul next year, and chairman Peter Erskine said: "We remain fully confident in this management team to deliver [long-term success]." It said it would maintain its dividend this year and next as a sign of its confidence.
But Simon Davies at Canaccord Genuity, who cut his target price from 220p to 190p and moved from buy to hold, said: "This is clearly another deeply disappointing update from Ladbrokes, putting considerable pressure on the chief executive, who has seen digital profits drop from £63m to less than £14m since his arrival. If he were to step down, there would be speculation Ladbrokes could face a bid."
He said in 2008 both William Hill and Ladbrokes made £50m from their online businesses. This year William Hill will make about £150m while – as it said on Thursday – Ladbrokes will make £14m at best.
Meanwhile Ladbrokes, along with other bookmakers who base their online operations offshore, will face new UK tax charges from December 2014, based on the location of their customers rather than where their business is registered. This adds more pressure for the company to sort out its digital difficulties.
Analyst Victoria Greer at JP Morgan Cazenove said: "We think that it may now be too late for Ladbrokes's digital business to achieve the scale that we see as key to competing effectively in the UK online market after the tax change."
Nick Batram at Peel Hunt also suggested its current problems could attract the attention of a predator: "Given that much of Ladbrokes' pain is self-inflicted, there are genuine reasons to hope for a recovery and this could represent the nadir in the group's fortunes. Furthermore, Ladbrokes is a major industry asset and continued underperformance leaves the group vulnerable to new ownership or leadership."