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William Hill - High street continues losing streak

Nicholas Hyett | 1 March 2019 | A A A
William Hill - High street continues losing streak

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William Hill saw net revenue rise 2% in 2018 to £1.6bn, thanks to good results from Online and the rapidly growing US business.

However, additional costs in the Online business and lower revenues from the group's high street shops saw underlying operating profits fall 15%.

The full year dividend fell 9% to 12p, with a final dividend of 7.74p.

The shares fell 2.8% in early trading.

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Our view

An £883m impairment shows how much of a game-changer the government's decision to cap maximum stakes on fixed-odds betting terminals at £2 a spin is.

The idea is to tackle problem gambling, and it received widespread parliamentary support. But with close to 30% of group revenue coming from gambling machines, William Hill will take a hit.

Footfall on high streets is already weak, and the new legislation will push many stores into loss. We can expect shop closures. Additional taxes and due diligence checks have knocked another few million off online profits as well.

But it's not all bad news.

The app has had a facelift, and a revamped marketing campaign, plus products like #YourOdds, have breathed new life into the brand. The acquisition of Swedish digital specialist MRG should add further online expertise, and will also serve to diversify the business across Europe.

The US presents another potentially exciting avenue for overseas growth.

William Hill already has a presence in the US, running books in over 100 casinos in Nevada, historically the only state to offer open market sports betting. Now the Supreme Court has cleared the way for gambling across the country. William Hill has been quick out of the stalls, in what has the potential to become the world's most valuable betting market. The group's accepting bets in 7 states already and has entry agreements for several more.

However, the last time William Hill rolled the dice on international expansion it didn't go well. The Australian business has now been sold, but the proceeds of £170m were only around a third of what the group spent to acquire it in the first place.

Cracking the US market will be no walkover either. Rivals are scrambling to secure a share of the US market, and dynamic rivals GVC and Paddy Power Betfair should not be taken lightly.

For that reason we'd suggest caution when it comes to William Hill - especially with the shares trading well above their longer-term average at 15.3 times expected earnings, and offering a prospective yield of 4.8%.

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Full Year Results

Reported profits showed a £721.9m loss in 2018 - as the group took significant write-downs on its high street business, ahead of the introduction of a £2 cap on Fixed-Odd-Betting-Terminal (FOBTs) stakes in April. Stripping out this and other exceptionals, the group reported an underlying profit of £233.6m.

Total amounts wagered fell 1% in the Online business to £4.7bn, although this was offset by a slight improvement in net win margins - resulting in a 3% rise in net revenue to £634.4m. Increased taxes, and a 3% increase in operating costs meant operating profits in the division fell 2% to £130.2m.

Wagering in William Hill US increased 25% in the year to £1.1bn, with a 0.9 percentage point improvement in gross win margins. This was primarily driven by results in the existing Nevada business, although there was also early progress elsewhere in the US following the legalisation of sports betting nationwide. Underlying operating profits rose 91% to £32.6m.

The UK Retail business saw wagering fall 5% to £2.2bn. Despite being partially offset by an improved net win margin, total net revenue fell 2% to £895.2m. Operating costs remained unchanged, with operating profits down 7% as a result to £150.3m.

Despite the lower profits, and increased investment in the US, business saw net debt fell 40.1% to £308.1m. That was driven in large part by the £141.6m sale of William Hill's Australian business and £100.7m stake in tach group NYX.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.


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