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William Hill - Profits fall but dividend held

George Salmon | 24 February 2017 | A A A
William Hill - Profits fall but dividend held

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Group net revenue rose 1% to £1.6bn, but adjusted operating profit of £261.5m is down 10% on 2015, in line with the guidance provided in January. After recent investment, the group says that there are now encouraging signs in all divisions, in particular the UK online business. The shares rose 3.4% on the news.

Our View

2016 was supposed to be the year that William Hill's online business regained its mojo, following a number of operational challenges in FY15. Instead things have gone backwards, with profits down in the division. We can forgive the group an unfavourable run of sporting results, which are clearly outside its control, but it seems that there are other factors at play here.

The fall in profits is primarily due to increasing costs and a lower win margin. Even the 2% growth in amounts wagered is seriously lagging rivals such as Ladbrokes, Coral and Paddy Power Betfair. Part of the problem is that the group has seen an acceleration in the number of time-outs and automatic self-exclusions in its online business. Basically 'problem gamblers' being locked out of their accounts.

Like all bookies, William Hill is trying to recruit more "recreational" clients. 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. Unfortunately, at present, Fixed Odds Betting Terminals, not typically the recreational punter's choice, are still a key contributor to group profits. If regulation on here is tightened up, future profitability would be hit.

With the distracting merger talk of last year now behind it, the group seems to be knuckling down to the job of sorting out the core business. Recent updates suggest that trading in Australia is improving, another area that has underperformed in recent years.

However, for all the drama of last year, which included takeover talk and a CEO leaving, the group doesn't seem to have made much progress in 2016. In full year results, the group did say it has made encouraging start to 2017, but one swallow doesn't make a summer. Investors will want to see evidence that William Hill can make the improvements stick.

Full year results:

Euro 2016 was helpful, but other sporting results, such as Cheltenham and football results towards the end of the year, were unfavourable.

Retail revenues were flat over the year, with Gaming growth offsetting high street sports betting declines. Gross win margins were marginally lower over the year, and amounts wagered declined 4%. The division generated £162m of adjusted operating profit, down 5% on 2015.

Online, amounts wagered increased 2%, with an improving performance in the UK, the group's main market. Net revenue was down 3% in 2016. With operating costs rising 5% as a result of a higher wage bill, adjusted operating profit fell 20% to £100.5m.

In Australia, adjusted operating profit increased 1% to £15.4m. Strong growth in amounts wagered, up 18%, was largely offset by a lower gross win margin.

The group continues to try and improve online functionality. Philip Bowcock, Interim Chief Executive Officer of William Hill says that the group is expanding the product range, increasing its marketing investment and deploying "technology assets and expertise in key areas".

Full-year dividend maintained at 12.5p 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.

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.