The Investment Column: Ladbroke bounces back

What a difference a year makes. Exactly 12 months ago, Ladbroke, the hotels and gaming group, issued a profits warning blaming difficult trading in its betting and gaming division on the start of the National Lottery and the introduction of instant-win scratchcards. The news sent the shares to a 10-year low of 123p. Since then they have outperformed the market by 43 per cent, even after yesterday's 3p fall to 195.5p.

The turnaround has been helped by a fall-off in scratchcard sales, a one percentage point cut in betting duty to 9 per cent, the installation of slot machines in betting shops and the introduction of gambling on the Irish Lottery. Ladbroke has also made the strategically significant decision to unify the Hilton brand and allow it to be marketed centrally on a world-wide basis. Once the deal with Hilton Hotel Corporation, which owns the Hilton name in the US, is finalised, HHC will hold 5 per cent of Ladbroke's shares.

Yesterday's third-quarter trading update provided little in the way of new detail on the alliance's progress, which is hardly surprising as the deal has yet to be formally ratified. Moreover, its benefits are likely to take several years to show through.

Indeed, apart from news that Ladbroke had received approval for a gaming licence from the state of Nevada, the only new line from the statement was confirmation that jockey Frankie Dettori's historic seven wins at Ascot in September had cost the betting division pounds 8m. That left profits at Britain's biggest bookie slightly lower than in the corresponding period.

Ladbroke, along with the rest of the racing industry, is countering the prospect of the introduction early next year of a mid-week National Lottery draw by lobbying for a 1.5 per cent cut in the betting duty in the Budget.

BZW has pencilled in pre-exceptional profits for this year of pounds 156m, rising to pounds 207m next and pounds 235m in 1998, when the forward p/e falls to a market rating of 13.

That looks about right given the buoyant state of the world hotels market, the potential benefits of the Hilton deal and continued recovery in the fortunes of the betting industry.