William Hill plc (WMH) Ordinary 10p
HL comment (21 November 2019)
Net revenue rose 1% in the third quarter, as growth Online and in the US offset falls in the UK retail estate.
The shares fell 1.4% following the announcement.
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, the damage is consistent with expectations. Nonetheless the new rules, plus weaker footfall trends, mean around 700 stores have been closed, hitting revenues and increasing costs this year.
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.
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 marginally above their longer-term average at 14.1 times expected earnings, and offer a prospective yield of 4.6%. However, holders should note a dividend policy that ties earnings to the payout means a cut is very likely this year. The group is targeting paying 8p per share.
Third Quarter Update
Online revenues grew 26%, including the acquisition of Mr Green, as a 51% increase in gaming offset a 7% fall in sports betting. Excluding this acquisition, Online UK revenue was up 4%, in line with the market, and international revenue was down 4%, as regulatory challenges disrupted business. The most notable of these was in Switzerland, where foreign bookies had their websites banned.
William Hill's Retail business continued to suffer following the introduction of a £2 limit on Fixed Odds Betting Terminals. Revenue fell 23% as the group closed around 700 shops, leaving them with around 1,600 locations. Gaming revenue in remaining stores has collapsed 39%, although some customers have taken to wagering on sports instead, which saw 13% growth. While it's still early days, William Hill says results are consistent with their expectations.
The group's US business saw revenue grow 53% in dollar terms, driven by the expansions into newly legal states. Sterling revenue in the new states tripled, and William Hill forged into Indiana and Iowa, bringing the total new states up to eight plus Washington DC, with a market share of 26%. The original Nevada operations saw dollar revenue rise 27%.
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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