William Hill plc (WMH) Ordinary 10p
HL comment (17 June 2020)
Over the six weeks to 9 June 2020, net revenue was down 50% compared to last year. That's an improvement on the six weeks prior (net revenue down 57%), reflecting a gradual recovery in the sporting calendar.
While there's greater visibility and activity in the upcoming sporting calendar, the outlooks remains uncertain. The group announced plans to raise additional funds through a share placing equivalent to 19.99% of its existing shares. William Hill intends to use the proceeds of the placing to fund US expansion and strengthen the balance sheet.
The shares fell 5.2% the morning after the announcement.
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, seeing sports events cancelled globally and UK retail shops closed over lockdown. It's no surprise revenues have slumped.
That's going to hurt profits. Expectations before the outbreak were for cash profits somewhere in the region of £260m for this year. But as lockdowns came into play William Hill revised that down to around £160m - reflecting limited sports and a month of shop closures. We've yet to hear an update but we're told the group is now performing ahead of this initial scenario.
The big news however, is the return of sports to our screens. William Hill's already starting to feel the benefit, with recent revenues boosted by the return of the German Bundesliga and UFC and NASCAR in the US. The UK's now following suit, with the Premier League restarting and Ascot around the corner. Last year sports revenue made up over half of group revenue, a higher proportion than some of its rivals, so matches been missed dearly.
While plans for opening shops and pitches are promising, it's likely to be a slow process, potentially with stops and starts. That means earnings over the next few months will continue to be unsteady, so a resilient balance sheet remains key.
At the moment the group has access to plenty of cash and having just raised a further £224m through a share placing - it should be more than enough to cover costs of disrupted trading.
Returning to business as usual is likely to remain the focus for now, but the extra cash will allow William Hill to speed up its expansion plans in the US, where it has a notable and growing presence - particularly in sports. The number of state's licensing sports betting is expected to rise over the next year, which could provide an important source of growth and even antidote to the group's more recent troubles.
Investing in the gambling industry isn't for everyone, with regulators never far from the side lines, and limited sports and shops a particular challenge at the moment. However, William Hill has shown it has the clout to withstand disruption and with a higher exposure to sports (not casino) bets and prospect for growth in the US, we think the shares could offer opportunity for the intrepid.
Trading Statement (6 weeks 9 June 2020)
Online net revenues were down 3% in the period, a significant improvement on the six weeks prior. This reflects an improvement in sports wagers as horseracing and the German Bundesliga resumed and customers continuing to place bets on alternative sports such as table tennis. New product launches are gaining traction including a strong performance in the new UK gaming site.
In light of government coronavirus closures, UK Retail revenues were down 100% on the prior year. However, now permitted to reopen William Hill will begin to gradually reopen betting shops in time for Royal Ascot and the resumption of the football season.
In the US net revenue was down 62%, an improvement from the 90% decline the six weeks prior. The improvement reflects resumption of UFC, NASCAR and availability of alternative sports. While casinos largely remain closed the group used some of the Nevada locations to operate drive-through sports betting. William Hill are on track to launch online gaming in New Jersey upon receipt of regulatory approval.
Monthly cash outflow improved over the last six weeks and the group said it has a "line of sight to generating positive cash flow from our operations in the second half of the year".
Following the repayment of a £203m 2020 bond, total unrestricted liquidity now exceeds £500m. The group also expects to receive a VAT refund in the second half of the year, roughly equivalent to the value of the bond.
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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.
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