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William Hill - upgrades full year profit guidance

Sophie Lund-Yates | 13 January 2020 | A A A
William Hill - upgrades full year profit guidance

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William Hill plc Ordinary 10 pence

Sell: 175.80 | Buy: 175.95 | Change 0.75 (0.43%)
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In a trading statement ahead of full year results on 26 Feb, William Hill said it now expects full year adjusted operating profits between £143 - £148m.

That's ahead of both market and management expectations, and reflects favourable sporting results at the end of last year.

The shares rose 1.1% following the announcement.

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Our view

Investors were braced for a hit when the government cut the maximum stake on gaming machines to £2 a pop.

While the retail business hasn't come away unscathed, around 700 stores are expected to close this year, hitting profits, latest results show it's at least coping better than expected.

Unfortunately for William Hill this might not be the end of the road for new regulation. The industry is under increased pressure to protect problem gamblers, and MPs have made noises about increasing digital casino regulation too. That could prove an unhelpful headwind for online revenues, which continue to grow in significance, providing much needed support during the Retail overhaul.

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

The app's had a facelift, and the acquisition of Swedish digital specialist Mr Green should add further online expertise while diversifying the business across Europe. It's already adding a shot in the arm to sales, but the continent comes with its own regulatory challenges.

The US presents another exciting avenue for overseas growth.

William Hill already had 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 and William Hill has been quick out of the stalls. The US has the potential to become the world's most valuable betting market and the group's already accepting bets in nine states plus Washington DC. There's the potential to add several more.

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

The shares trade at 14.9 times expected earnings, above their longer-term average of 11.9, and offer a prospective yield of 4.5%. However, with a dividend policy that ties the payout to earnings, a cut shouldn't come as a surprise to investors this year. The group is still targeting paying 8p per share compared to 12.0p paid last year.

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Trading details

Online revenues in the UK rose in line with the market, as strong sporting gross win margins offset weak gaming net revenues. Online International underlying net revenue is expected to be flat in the fourth quarter. Sports book net revenue was weak, but there was a good performance from gaming, driven by Mr Green.

William Hill's Retail business generated operating profit above the guided range of £50-70m. Strong sporting results in December and a better than expected gaming performance both contributed to the improvement.

The group's US business continued to grow, and is now expected to breakeven in 2019 overall, compared to previous guidance of $0m to -$20m. That reflects increased wagering and disciplined investment.

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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 disclosure for more information.