William Hill

William Hill PLC is Bristol, United Kingdom-headquartered betting and gaming company. The company, which was established in 1934, attracts millions of customers from around the world and is one of the most trusted brands in the industry. The UK is the home market for the group, but it is increasingly focusing on the international market, as it continues its strategy of creating a digitally-led, internationally diverse gambling company, with a presence in eight countries worldwide and license in four regulated gambling markets. The company’s operations are differentiated in five operating segments: Retail, Online, US Existing, US Expansion, and Other. Philip Bowcock is the Chief Executive Officer of the group.

Trading Statement
During the 17 weeks to 30 April 2019, net revenue rose by 2%, reflecting growth in online revenues. Due to the acquisition of Mr Green, which the group completed at the end of January 2019, online net revenue rose by 8%. However, as gaming was flat and Sportsbook was down by 12%, online net revenue on pro forma basis was down 6%. For the remainder of the year, the company expects gross win margins to normalise, and full-year outlook would be in line with expectations.

Financial Highlights (FY 2018, in £m)

(Source: Company Filings)

Although Retail was challenged by wider high street conditions with revenue down by 2%, group net revenue in 2018 was up 2% to GBP 1,621.3m for a 53-week trading period in 2018. Gross profit rose by 4% to GBP 1,235.7m, as costs of sales decreasing by 4%. The group adjusted operating profit declined by 15% to GBP 233.6m, driven by the cost of investment in expanding the US business, which led to a 7% increase in net operating expenses to GBP 998.0m. Adjusted operating profit declined by 3% if the impact of the US Expansion segment is excluded. Adjusted profit before tax reduced by 16% to GBP 200.2m, while statutory loss before tax was GBP 721.9m, led by exceptional charge and adjustments of GBP 922.1m. Due to US investment, online customer checks and weaker retail performance, adjusted profit after tax decreased by 21% to GBP 176.1m, while statutory loss after tax for the period was GBP 716.1m compared to a profit of GBP 142.4m in 2017. This led to a corresponding 21% decrease in the adjusted earnings per share to 20.6p and a total basic loss per share of 83.6p compared to the earnings per share of 16.6p.

Valuation Methodology
Method:  Price/ Cash FlowApproach (NTM)


Share Price Commentary

Daily Chart as at July-03, before the market closed (Source: Thomson Reuters)
 
On 3 July 2019, at the time of writing (before the market closed, GMT 12:15 pm), WMH shares were trading at GBX 162.45, up by 3.7 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 307.00/GBX 128.41. The company's stock beta was 0.83, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £1.37 billion, with a dividend yield of 7.66%.

Conclusion
Following the opening of regulated sports betting in the US and the Triennial Review decision for UK gaming machines, the company has greater clarity around the key challenges and opportunities for its business and accordingly it has set a new five-year strategy and a goal to double operating profits by 2023. The face of the global gambling industry has been radically changed by the emergence of digital gambling, opening many opportunities for companies like William Hill, which is in a decent position to take a leading position on the gambling world stage. High levels of innovation can prove attractive in other international markets, which augurs well for the company.

Based on the decent prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 156.70 (as on 2 July 2019) based on 7.42x NTM Price/Cash Flow(approx.) on FY19E Cash Flowper share (approx.).

ASOS

ASOS PLC (ASC) is a British online fashion and cosmetic retailer with an active presence in the UK, US and Continental Europe. Apart from being a fashion company, the group calls itself a technology company and is one of the leading fashion stops for 20-somethings globally. Around 60% of the products sold are exclusively sold on its platform, and the company operates its own brand of clothes as well. The company’s operations are differentiated in three operating segments: Retail sales, Delivery receipts and Third-party revenues.

 Financial Highlights (H1 FY 2019, in £m)

 (Source: Company Filings)

Despite a challenging backdrop, disruptions from large scale transformational projects and short term pricing, marketing and inventory decisions, the revenue in the period rose 14% to GBP 1,314.5m(H1 2018: GBP 1,158.1m) and retail sales grew by 13% to GBP 1,281.3m (H1 2018: GBP 1,131.3m). While gross profit rose by 12% to GBP 639.9m and gross margin of 48.7% (H1 2018: 49.2%) was up by 10bps, due to slower growth in the US and a continued increase in branded sales mix, group retail gross margin decreased by 60bps to 47.4% versus last year (H1 2018: 48.0%). Led by gross margin deterioration of 50bps and a 170bps investment in operating costs, the company generated profit before tax of GBP 4.0m, which was down by 87% compared to last year.

Valuation Methodology
Method:  EV/EBITDAApproach (NTM)
 

Share Price Commentary

Daily Chart as at July-03, before the market closed (Source: Thomson Reuters)
 
On 3 July 2019, at the time of writing (before the market closed, GMT 12:25 pm), ASOS shares were trading at GBX 2,609, up by 2.9 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 6,580.00/GBX 2,114.00. The company's stock beta was 1.77, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £2.14 billion.

Conclusion
The company admitted that it was disappointed by the revenue growth in the first half but did not change its guidance for the year as it forecasts an improved performance in the second half. Though the company faced disruption and transition costs from its capital expenditure programme, it is confident of its ability to restore profitability and accelerate free cash flow generation, while continuing to capture market share. As the online apparel market continues to grow unabated, with the global online fashion a £220bn+ market, considerable growth opportunities can be seen in key markets. With the technology platform and infrastructure, the company owns, it is well placed to capitalise on this shift in customer behaviour.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 2,540.00 (as on 2 July 2019) based on 18.05x NTM EV/EBITDA(approx.) on FY19E EBITDA(approx.)
 
*The buy recommendation is valid for the current price as covered in the report (as on July-03-19)
*All forecasted figures and peers have been taken from Thomson Reuters.

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