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William Hill - 2017 better so far

George Salmon | 9 May 2017 | A A A
William Hill - 2017 better so far

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William Hill has reported a positive start to the year, with growth in wagering and net revenue across the board helping group net revenue rise 9%. The shares rose 1.7% on the news.

Our view

With a new CEO in place and the distracting merger talks behind it, 2017 has started well for William Hill, after an eminently forgettable 2016. While investors will be hoping this means the group is finally starting to hit its stride, we can't help but fear there remain a few hurdles ahead.

In recent years, William Hill's spluttering online division has been symptomatic of its wider troubles. To try and remedy the issue, the group has taken on more developers, who have helped launch a new app and refresh the website - a not altogether pain free process.

We've also seen a plethora of new features and online improvements in the struggling Australian business. Although it only contributes a single digit percentage of group profit at the moment, bookmaking is big business Down Under so it is encouraging to see recent trading on an upward trend.

However, there remains work to be done. Despite some improvement, William Hill's online gross win margin is relatively weak, and growth in amounts wagered online is lagging both 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' locking themselves out of their accounts.

Like all bookies, William Hill is trying to recruit more "recreational" clients. These punters 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, Fixed Odds Betting Terminals, not typically the recreational punter's choice, are still a key contributor to group profits. Calls for a clampdown on these machines are getting louder, and if regulation here is materially tightened up, profitability would take a hit.

For the time being, the shares trade on 12.1 times expected earnings, and offer a prospective yield of 4.4%.

Trading update (17 weeks to 25 April 2017)

Online net revenue rose 16%. Sportsbook saw 9% growth in amounts wagered, driven by the UK. The beneficial impact of strong horseracing results more than offset weaker football, resulting in gross win margins rising 1.2 percentage points to 7.5% and net revenue rising 26%. Gaming net revenue was up 8%.

A busier horseracing calendar helped staking in the High Street Retail business rise 2%. However, net revenue rose just 1% as unfavourable football results had a bigger impact on gross win margins in the division, down 0.8 percentage points to 18.0%. Gaming net revenue was up 4%.

In Australia, amounts wagered increased 29% at local currency, in spite of reduced in-play volumes following recent regulatory changes. Gross win margin was 1.2 percentage points lower at 8.2%, below expectations with a disproportionate number of winning favourites in horseracing. Consequently, net revenue increased 19% at local currency.

William Hill remains pleased with the progress made in its US business. A 0.5 percentage point decline in gross win margin was more than offset by 12% growth in amounts wagered, meaning net revenue was up 3% at local currency.

Philip Bowcock, CEO said the transformation programme is progressing well, with the group on track to deliver £40m of annualised savings by the year-end. He added that William Hill is in line with market expectations at this early stage in the year.

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.