Credit Suisse this week expressed reservations about UK land and online gambling group Ladbroke's ability to "tear customers away from online rivals", reports The Times Online. And Credit Suisse also pointed out that the gambling company would need to conserve cash since it needed to refinance GBP 410 million of debt by 2011.
"Ladbrokes is using cash from its slow-growth betting shops to finance building up its European online betting operations and its stores in Spain and Italy," Fitch, the ratings agency, said earlier this month when it cut Ladbrokes’ debt rating to junk level. The agency opined that the company is being outcompeted by the pure online gaming companies such as PartyGaming and 888 Holdings.
Ladbrokes’ high marketing spend, mainly for an in-store loyalty programme, has yet to show results, warned Fitch. "At the same time its start-up operations in Spain and Italy are gobbling costs."
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Ladbrokes shares have dropped by 20 percent (one fifth) since a weak trading update in May 2009.
Credit Suisse maintained neutral ratings on both rival online and land gambling group William Hill plc and Ladbrokes, but said it preferred William Hill of the two and trimmed its Ladbrokes price target.
William Hill terminated its joint offline venture with Codere in Spain in May this year essentially because it couldn’t get volume up quickly enough. Also with Codere and for similar reasons, Hills did the same in Italy last year, reports The Times. William Hill management is on record as saying it intends to more vigorously pursue online gambling to expand international business opportunities.
"Ladbrokes meanwhile is carrying on in its joint venture with Cirsa in both Italy and Spain, although Ladbrokes latest trading update did mention its Spanish growth would depend on how quickly regulation in the regions outside Madrid would allow it to open outlets," The Times concludes.
"What this also brings into relief is the difference in approach between the two betting and gaming giants."