William Hill has announced a 2% increase in net revenues, with growth boosted by the recent Mr Green acquisition and continued expansion in the US, while the impact from the FOBT changes is no worse than the group had expected.
The shares rose 2.7% on the news.
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An £883m impairment in 2018's results showed 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 previously 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, so we can expect shop closures. Additional taxes and due diligence checks are limiting online growth too.
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 Mr Green 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, which historically had a near monopoly on 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 seven states already and has entry agreements for several more.
Progress has been good so far, but we still think a note of caution is needed. 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.
The shares trade marginally above their longer-term average at 12 times expected earnings, and offer a prospective yield of 6.3%. However, holders should note a dividend policy that ties earnings to the payout implies a cut this year to something like 8 or 9p per share.
Trading details (17 weeks to 30 April)
The high street Retail business saw net revenue fall 7%, driven by the new £2 maximum stake on FOBTs, which led gaming revenue down 15%. Higher staking and extra self-service machine options saw sports revenue rise 2%, despite lower win margins.
In the Online business, revenue rose 8%. Excluding the impact of the Mr Green deal online revenue fell 6% as win margins returned to a more normal level after an exceptional 2018. The group also continues to be impacted by extra customer due diligence measures.
In the US, revenues are up 48%, or 39% in local currency. That comes as wagering, including operations where William Hill is the service provider, rose 99% in dollar terms. The existing operation saw net revenue rise 6%, but after stripping out currency movements this was flat on last year. Wagering rose 27% (local currency +19%), with the gross win margin down 1.1 percentage points on last year.
William Hill's full-year outlook remains in line with its previous expectations, and includes normalised gross win margins for the remainder of the year.
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.
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