New Ladbrokes chief executive Jim Mullen is getting a lot of advice regarding the company’s dividend payments and is being urged to cut the payments and instead invest in the bookmaker’s online operations.
Several major analysts from firms such as Morgan Stanley, Barclay and Peel Hunt want Mullen to make the move in recently released reports. .
Vaughan Lewis, analyst at Morgan Stanley for example, said that the recent changes at the board level for Ladbrokes creates the opportunity to re-base the company’s dividend payments, which the bookmaker barely has the cash on hand to cover.
Even if Ladbrokes cut the dividend in half, it would still leave the company with a yield of 3.8 percent, Lewis said.
“In our view, a dividend cut would give Ladbrokes more flexibility to invest in the business, reposition the digital division and continue to look for opportunities for bolt-on deals such as those in Australia,” Morgan Stanley said.
Earlier this month analysts at Barclays and Peel Hunt made similar arguments and called on Mullen to pursue “a more aggressive strategy” that would involve a substantial increase in marketing spend.
Patrick Coffey at Barclays said a cut in the dividend now looked “inevitable”.
When Ladbrokes released its 2014 annual results in February, then CEO Peter Erskine came under sustained questioning from analysts about whether the dividend should be cut in order to reinvest in digital marketing.
Erskine, however, said the company was “happy” with the projected marketing spend for 2015 of about 60 million pounds.
