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Stock Watch: Ladbrokes Coral-owner GVC Holdings & Lookers

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

The latest figures from the British Retail Consortium showed the slowdown in consumer spending is far from over. In fact, rather than July's hot weather boosting consumer spending, it actually fell to a new low.

Average retail sales over the year to July rose by just half a percent, with the "challenging retail environment" taking its toll both on the High Street and online. Even grocery sales were lacklustre and they usually rise when the sun is out, as people fire up the barbecue and spend on picnic goodies.

And, of course, the effect of the consumer slowdown doesn’t stop at the fashion retailer on the high street or at the out-of-town supermarket. The holiday industry has already felt the pinch; with package holiday firm Super Break and Late Rooms the latest casualties of the nation’s collective belt-tightening.

Consumers are clearly feeling cautious and less flush, which spells trouble for anyone running a business that depends on the UK’s consumers actually putting their hands in their pockets and spending. Cue the nation’s bookies which are also earmarking stores for closure.

William Hill (WMH), which currently has 2,300 shops and 12,500 employees, had suggested 900 stores could be at risk, but has since trimmed that back to 700; the first of which could go before the end of the year.

Of course, William Hill isn’t the only bookmaker having to make cuts to its shops and workforce. GVC Holdings (GVC), which owns Ladbrokes Coral, has said it expects to shut about 1,000 shops, while Betfred has earmarked up to 500 outlets for closure.

The firms have blamed the closures on the government's decision to reduce the maximum stake to £2 on fixed-odds betting terminals - electronic slot machines that let players bet on the outcome of various simulated games and events.

Since April, when it came into force, the companies say they’ve seen "a significant fall" in revenue from these machines.

Last week we heard from William Hill, this week it’s the turn of GVC Holdings, the UK’s largest high-street bookmaker, which is due to post half-year results.

A month ago the group, which owns the Ladbrokes Coral chain of betting shops, said it remained confident of meeting expectations after seeing a 'very strong' performance in the second quarter. It said that was because its online division stepped in and scooped up “material” market share gains across all major territories, softening the effect of the decline on the high street business side.

To date GVC has revealed that the £2 maximum stakes ruling has seen a 39% year-on-year fall in like-for-like machine revenue in the UK. Investors will want to know what it plans to do to combat that going forward.

The US is likely to be a key focus, especially with Roar Digital, its joint venture with MGM Resorts, on-track for its full online launch ahead of the American football season which starts next month.

Overall, GVC has insisted that the group is trading well and that any potential costs in 2019 associated with the new sports licences in Germany are expected to be fully mitigated. And it said it remains confident of delivering earnings and operating profits in-line with expectations for the full year.

Deutsche Bank has initiated coverage of GVC with a buy investment rating and price target of 910p. Berenberg has retained its buy investment rating and raised its price target to £11.30, while Barclays Capital remains overweight and has raised its price target from 887p to 900p.

Staying with the consumer theme, we get half-year results from car retailer Lookers (LOOK) on Wednesday. A month ago it warned that profits would take a hit this year amid falling consumer demand for cars and rising costs.

The company downgraded its outlook on underlying profits before tax to come in at approximately £32 million, compared to the £43 million it managed over the same period last year.

It said that while trading in the second quarter had begun satisfactorily, it had proved increasingly more challenging, with registrations down 4.6% in the quarter from a year earlier.

Weaker demand and the resulting margin pressure in the used car market had significantly increased, notably during the month of June. So after the latest retails sales data to suggest July was a damp squib, there might not be much in the way of positive news from Lookers this time around either.

Brokers certainly suspect there may be more downside than up in the near future. Peel Hunt has downgraded its investment rating from buy to hold and slashed its price target from 150p to just 45p. JP Morgan Cazenove repeated its neutral investment rating as it cut its price target almost in half - from 98p to 47p, while Liberum Capital has maintained its buy rating but cut its price target from 119p to 68p. The shares have since fallen and are currently trading around 42p.

Important information The value of investments and the income from them, can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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