William Hill (WMH) – Racing according to form

William Hill (WMH) – Racing according to form

William Hill shareholders have had a rough ride over the past year. 2018 saw the share price fall over 50%, mostly due to the reduction of the maximum bets on fixed odds betting terminals from £100 to £2, along with other regulatory  headwinds (latest share price 173p, market cap £1,490 million).

In November, the company reduced its operating forecast for the year to £225-£245m.

And in the last few weeks, the United States Department of Justice has apparently reversed an earlier decision that would have freed up its betting markets. WIlliam Hill made progress in the US but this decision won’t help it to achieve its aim of doubling operating profits by 2023.

Let have a quick look at Monday’s trading update:

  • “Adjusted” operating profit for the year expected to be c. £234 million, i.e. within the range forecast in November and down 15% on 2017.
  • “Underlying” operating profit up c. 4% (excluding costs of enhanced due diligence for Online and US expansion costs).
  • No details given about revenue but in November it looked like online net revenue was +4%, retail net revenue was -4%.
  • The previous trading update said US existing net revenue YTD was +36% in local currency – we know now that the US business “broadly broke even in 2018”.
Additional notes

William Hill previously made an offer for the online gambling company Mr Green, to enhance its international offering. I understand that it needed 90% of the shareholders to agree to the deal – it now has 92%, and has extended the acceptance period to the remaining holders until January 31st.

My opinion

Revenues have barely changed for the last four years so the international plans are key to growing the top line. In the UK the competition is fierce and led by the very formidable Bet 365.

Some politicians last year took great pleasure in bookie-bashing and that will always be the case due to the attitudes towards gambling held by some. Indeed when the US DoJ made its ruling last week, it was reported by Thomson Reuters that it “called for wider restrictions on all gambling on the internet.”

The dividend now offers a prospective yield of around 7.5%. This has been safely covered by free cash flow in the past, but it could be cut in the future to help fund further acquisitions.

Full-year results should be published in March- let’s see how the balance sheet looks by then.

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