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William Hill - Q3 profits disappoint

Steve Clayton | 23 October 2015 | A A A
William Hill - Q3 profits disappoint

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

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William Hill have used their Q3 trading statement to guide market expectations for the full year down to the bottom end of the range of analysts' forecasts, which the company set at £291m to £312m of operating profits. The weakness is driven by lower than expected gross win margins and the ongoing impact of additional taxes on the industry. The small Australian business has also seen an almost 20% foreign exchange impact on reported profits, whilst Online witnessed a rapid decline in some non-core products and markets.

Overall Operating Profit fell 37% in the Online division, 31% in Retail and 91% in Australia, leaving the group outcome 39% lower for the quarter and 22% down for the first three quarters as a whole. James Henderson, CEO commented that he was pleased with the strategic progress being made, reflecting an improved mobile product and good growth in Online's core markets and signs of an improving gross win in Retail toward the end of the quarter.

The shares reacted negatively, falling 5% in early trading.

Our view:

There is little to be positive about in these numbers, although the Chief Executive is trying his hardest. To be fair, they would look nowhere near as bad without the increased taxation costs, which led to the Cost of Sales in the online division surging by 175% in the quarter as £18m of Point of Consumption Tax (POCT) thudded into the P&L.

Sports results can go either way, as any fan knows, and last year, the industry enjoyed the World Cup boost to revenues and a generally favourable set of results. This year, the horses in particular have favoured the punters, not the bookies. Next year could be very different, so we should not get too worked up about a weak set of results, if chance outcomes are all that is to blame.

But there are real areas of concern here too. Machine income was slightly down, despite rival Ladbrokes reporting 9% growth in Gross Win Per Machine, Per Week only the day before. Wm. Hill had new content on their machines every two weeks, yet their GWPMPW of £911 is well behind Ladbrokes, who nudged theirs up through the £1,000 level. Overall, gaming machine net revenue declined by 1%. In Online, declines in non-core markets almost wiped out the benefit of growth in the UK, Italy and Spain, leaving amounts wagered barely ahead.

In Australia, the company seems to be making heavy going of converting the acquired business into a more recreationally focused gambling business, with amounts wagered dropping by 18% in local currency.

For some time, William Hill has been the more successful of the big, listed UK bookmakers. It was much more successful in developing an Online offering, leaving Ladbroke trailing far behind. These results suggest that the crown has slipped a little. Looking forward, William Hill is still the more online-oriented of the two, and certainly has lower leverage. But it cannot offer the same potential for cost savings that a merged Ladbrokes/Coral ought to be able to achieve.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.