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William Hill - half year results in line with expectations

George Salmon | 9 August 2019 | A A A
William Hill - half year results in line with expectations

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£114.3m of one-off costs, the majority of which centre on the £2 stake changes, including the proposed closure of around 700 shops, led to a reported loss before tax of £63.5m.

However, adjusted operating profit of £76.2m was down 33%, no worse than the company had expected, and the group remains on track to meet full year targets.

An interim dividend of 2.66p is 38% lower than last year. That represents one third of the 8p targeted this year, with the group looking to pay the remainder at the full year stage.

The shares rose 5.4% following the announcement.

View the latest share price and how to deal >

View the latest share price and how to deal

Our view

Investors were braced for a hit when the government cut the maximum stake on gaming machines to £2 a go. And while the retail business hasn't come away unscathed, the damage isn't worse than expected.

We can understand the concerns though, because close to a third of revenue came from betting shops. The new rules, plus weaker footfall trends, mean around 700 stores are at risk of closure. Hence the extra costs this year.

Sentiment around betting companies has seen a step-change too. Increased awareness of gambling addiction and corporate responsibility is seeing due diligence costs ramp up for William Hill. That doesn't help profits.

But that doesn't mean it's game over.

The app has had a facelift, and a revamped marketing campaign, plus the acquisition of Swedish digital specialist Mr Green should add further online expertise, and will also serve to diversify the business across Europe. It's already adding a shot in the arm for sales.

The US presents another 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 now accepting bets in eight states, and has entry agreements for several more.

Cracking the US market will be no walkover though. Rivals are scrambling to secure a share of the US market, and dynamic rivals GVC and Paddy Power Betfair should not be taken lightly. And memories of William Hill's less than successful foray into the Australian market still linger.

The shares trade marginally above their longer-term average at 12.3 times expected earnings, and offer a prospective yield of 5.7%. However, holders should note a dividend policy that ties earnings to the payout means a cut is almost certain. The group is targeting paying 8p per share.

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Half Year Results

Net revenue increased 1%, to £811.7m. That reflects the impact of the £2 limit on gaming machines being offset by the acquired Mr Green business.

In online, underlying amounts wagered was 5% behind 2018, with net win margins dropping from 8.2% to 8%. That resulted in a 2% decline in net revenue. Including Mr Green, there was a 14% increase in net revenue to £367.3m. Due diligence costs meant adjusted operating profit fell 12% to £54.3m.

The existing US business saw amounts wagered rise 16% to $766.6m. However a dip in win margins meant net revenue fell 2% to $49.8m, and higher operating costs saw adjusted operating profit decline 27% to $17.4m.

William Hill is now live with sports betting in eight US states. Within the expansion business, amounts wagered climbed from $6.2m to $241.1m, although lower win margins and increased costs saw an adjusted operating loss of $13.1m (2018: $22.4m).

In the UK retail business, amounts wagered rose 4% and net win margins were flat at 18.4%. The FOBT limit meant there was a 25% dip in gaming net revenue, which fed into an overall net revenue decline of 12%, to £391.5m. The impact of gaming limits was in line with expectations, with operating profit falling 43% to £42.7m.

Cash outflows meant net debt increased 83.6%, to £565.8m, representing a net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio of 2.

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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.