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William Hill - lockdowns hit results but plans for reopening

Emilie Stevens, Equity Analyst | 15 May 2020 | A A A
William Hill - lockdowns hit results but plans for reopening

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William Hill plc Ordinary 10 pence

Sell: 136.95 | Buy: 137.85 | Change 2.80 (2.08%)
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Net revenue fell 27% in the 17 weeks to 28th April. Despite a relatively resilient start to the period, the coronavirus outbreak saw sports events cancelled and retail shop closed and net revenues more than halved from mid-March.

Thanks to a number of cost saving measures, William Hill has reduced monthly cash outflow to £15m.

Total liquidity exceeds £700m and borrowing restrictions (known as covenants) have been waived for this year and relaxed for 2021.

The shares rose 4.9% on the news.

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Our view

William Hill's faced some sizable threats in recent times. Maximum £2 bets on fixed odd betting terminals, heightened regulatory scrutiny and a recent ban on using credit cards online all hurt profits.

But the outbreak of coronavirus trumps the lot - sports events have been cancelled globally and the group's UK retail shops closed. Sports revenue made up over half of the group's revenue last year, so it's no surprise revenues have slumped.

That'll hurt profits this year. Analyst EBITDA (earnings before interest, taxes, depreciation and amortization) expectations before the outbreak were in the region of £260m for the year. As the pandemic broke out and lockdown measures came into place, the group's initial assessment of the impact was a £100 - £110m knock on cash profits. But thanks to the group's mitigating actions, we're told things are going better than expected.

Unfortunately, retail shop closures are an additional cost on top. And while the impact has been halved to £12 - 15m per month, the only solution is to reopen the store estate. The plan is to reopen in the second half of the year, but this depends on the UK keeping 'R' down and lockdown restrictions easing.

Its good news therefore that sports action is starting to come back to our screens. The German Bundesliga is expected to start behind closed doors in May and horseracing is now live in France and expected to start in the UK in June. Football and horse racing are responsible for most of the group's online sports book and, while increased gaming revenues have plugged some of the gap, they've been missed.

While plans for opening shops and pitches are promising, it's going to be a slow process, potentially with stops and starts. That means earnings over the next few months will continue to be unreliable, so focus remains on the balance sheet.

We now know that the group has significant liquidity, which should stand it in good stead to ride out coronavirus. Total liquidity is above £700m, which covers the monthly cash burn a few times over, even with shops closed. The group's borrowing restrictions have also been waived this year and loosened next year. This provides important breathing room but restrictions do come back into play next year, so it's important business starts flowing again.

For now we're reassured by William Hill's liquidity and ability to cover its costs. News of reopening shops and restarting matches is promising but pre-covid levels are still some way off. The longer the disruption the bigger the dent, so cash preservation and online revenues remain key.

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Trading Statement

In the first 10 weeks of 2020, prior to the outbreak of coronavirus, total net revenue was down 5%. Despite significant growth Online and in the US, up 16% and 30% respectively, UK Retail revenues weighed on results - hit by the introduction of the £2 staking limit.

However, since the outbreak of coronavirus, with no live sport and retail shops closed, performance deteriorated significantly. In the period 11 March to 28 April total revenues dropped 57%. The group said there has been some substitution of sports to gaming bets and customers had continued to place bets on alternative sports like table tennis and emerging market football.

As coronavirus restrictions start to ease some sports activities, which account for most of the group's Online Revenues, are expected to start again behind closed doors. While Horseracing in France is already underway, the German Bundesliga is expected to start in May and UK Horseracing in June.

The group is also planning for a staged reopening of UK Retail Shops in the second half of 2020.

On 16 March the group announced that limited sporting activity until Autumn, and one month of shop closures, would lead to a reduction in cash profits (EBITDA) of £100m to £110m. However, in light of cost saving measures including lower staff, marketing and supplier costs, the group said it was performing ahead of schedule - despite 3 months of shop closures. Assuming government furlough schemes remain in place, the impact of each additional month of shop closure has now halved to £12 - 15m of cash profits.

The group's total liquidity of £700m includes £425m of credit, which the group has drawn down fully. Borrowing restrictions have been waived for this year and relaxed for next year. William Hill is required to keep net debt under 4.5 times cash profits (EBITDA) at June 2021, less than 4 times in December 2021 and under 3.5 times thereafter.

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