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William Hill - Amaya merger abandoned

Equity research team | 18 October 2016 | A A A
William Hill - Amaya merger abandoned

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Amaya merger abandoned

On 18th October William Hill announced that it would not be pursuing a merger with Canadian online poker group Amaya.

Since a possible deal was announced on the 10th October the group has reportedly canvassed the views of a number of major shareholders and has subsequently decided not to proceed with the transaction.

The move follows a rejected bid for William Hill from a consortium of Rank Group and 888 Holdings.

Our View

2016 has certainly been an eventful year for William Hill. Unfortunately, two bids and a CEO later the group doesn't look much further forward than it was in January.

This year was supposed to see William Hill's online business regain its mojo, following a number of operational challenges in FY15. Instead the group warned of lower profits from the division, barely a month after issuing full year results, and things don't seem to have improved much since.

We can forgive the group an unfavourable run of sporting results, which is clearly outside of its control. The acceleration in the number of time-outs and automatic self-exclusions in its online business is more worrying. Basically this means that 'problem gamblers' are being locked out of their accounts.

The term 'self-exclusion' is a bit misleading because it implies all the onus is on the individual to lock themselves out of their account. That used to be the case, but the regulation is increasingly moving towards placing more onus on the bookies themselves to identify problem gamblers and promote self-exclusion schemes. In the fourth quarter of last year, for example, the Gambling Commission introduced new rules to make it easier for online players to self-exclude. Previously, players would have had to contact a call centre to self-exclude but the new system provides an online prompt to do so.

The challenge for William Hill is to reduce reliance on problem gamblers and recruit more "recreational" clients. These are punters who don't take it seriously enough to really know what they are playing at, and can therefore be relied upon to bet money at poor odds, in return for a bit of a thrill. Recent performance suggests there is still a way to go on that front.

10 August 2016: William Hill have this morning released interim results for the period to 30 June 2016.

The group remain on track to meet the revised full year operating profit guidance of £260m-280m, which was lowered in March. The shares were level in early trading.

Net revenue nudges up 1% to £814.4m, but operating profits are down by 16% to £131.1m.

A strong European Championships generated a total £36m gross win, which has mitigated the impact of a loss-making Cheltenham festival.

Amounts wagered in the online Sportsbook declined by 1%, while gross win margins moved up 0.1ppt to 7.3%. This resulted in a 3% fall in overall online net revenue, with gaming declining 6% as time-out/automatic self-exclusions continue to have an impact. Online operating profit fell 33% to £43.4m, as costs rose 9%.

Improvements such as 'Cash In My Bet' have been introduced, and the user experience of the mobile website and app (which accounts for 70% of Sportsbook revenue) has been refreshed.

Despite a 4% decline in amounts wagered, over the counter (OTC) net revenue increased by 2% to £225m, as gross win margins improved by 1.1ppts to 19%. Overall, operating profit from the Retail division increased by 4% to £94.3m, boosted by 6% growth in gaming machine net revenues.

William Hill continue to roll-out self-service betting terminals (SSBTs), adding 800 in the period, 300 more than targeted. Another 1,200 are planned in the second half.

Interim CEO Philip Bowcock highlighted the need for William Hill to diversify, expanding digitally and internationally, and believes that the group has taken considerable steps forward in executing online improvements but that there is still a way to go. Other priorities include leveraging technological improvements across the business and a more focused approach to international growth.

The interim dividend is maintained at 4.1p per share.

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

All yield figures are variable and not guaranteed. The information in this article is not intended to be advice or a recommendation to buy, sell or hold any investment mentioned, nor is it a research recommendation. No view is given as to the present or future value or price of any investment, and investors should form their own view in relation to any proposed investment.

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.