William Hill PLC

London, United Kingdom-based William Hill PLC (LON: WMH) is the most trusted brands in the industry and one of the world’s leading gaming and betting companies. The company is differentiated into three business, namely online, William Hill US, and retail.

Recent News
On 17^th February 2020, the company announced the appointment of Adrian Marsh as a Group’s next CFO (Chief Financial Officer).

Financial Highlights (for the 52 weeks ended 31 December 2019, £million)

(Source: Final Results, Company Website)

For the 52 weeks ended 31^st December 2019 (the period), the group’s net revenue reduced by 2% to £1,581.7 million. Adjusted operating profit from existing operations for the period reduced by 37% to £147 million. Operating cash flow for the period tumbled 7% to £183 million, reflecting the reduction of 37% in adjusted operating profit. The acquisition of Mr Green and persistent investment in capital expenditure and the expanding US business has led to a surge in net debt to £535.7 million against the £308.1 million in the prior period.

Operational Highlights
In safer gambling, the self-regulatory measures executed in 2019including the voluntary levy for research, education and training and the ‘whistle-to-whistle’ advertising ban. In Online business, the UK absorbed 13 million pounds impact from the surge in Remote Gaming Duty; the international net revenue was impacted by legacy product and regulatory headwinds; and Mr Green achieved cost synergies of £4 million and performed in line with anticipations. As per the retail division, the company is closing 713 shops and the net revenue reduced by 13% on a like-for-like basis. The group has established a CBS media partnership in the US.

Share Price Performance

Daily Chart as at February-26-20, before the market closed (Source: Thomson Reuters)

William Hill PLC shares were trading at GBX 172 before the market close (at 8:15 AM GMT) on 26th February 2020 and were down by 2.60% versus the previous day closing price. Stock 52 weeks High and Low are GBX 206.80/GBX 128.41.  The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.73. At the current trading level, its stock was trading above its short-term crucial support level of 20-day Simple moving average price, and 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level.

William Hill PLC V/S FTSE 250 Mid Index – 3 Months
 
(Source: Thomson Reuters)

In the last three months, William Hill PLC share price has delivered negative 4.90 per cent return as compared to positive 0.06 per cent return of FTSE 250 Mid index, which shows that the stock has underperformed as compared with the index during the last three months.

William Hill V/S Industry V/S Sector – 1 year
 
(Source: Thomson Reuters)

In the last one year, William Hill PLC share price shows negative performance. This also reflects that the company is underperforming with the industry as well as with sector in a one-year period. The shares of the company have delivered a negative return of 8.16 per cent in the last week.

Valuation Methodology


Risk Assessment
Regulatory, political and legal risk; Strategic risk; Market/financial risk; Operational risk; and Tax changes.

Conclusion
Both the top-line and the Bottom-line performance have declined, while the dividend per share declined for the period.The year 2019 was a transition period during which the company laid the foundations to deliver the long-term ambition to be a digitally-led, globally diverse business underpinned by the commitment to safer gambling. The group has made decent progress on several fronts, including the US business, Retail business, and Online business.As the company operates in multiple geographies, its profits can be impacted negativelydue to foreign exchange rate fluctuations.In the future, environmental regulations, foreign exchange risks and expansion by competitors could affect its business operations.The company’s operations can be affected negatively due to uncertainties created over the Brexit, as it would disturb the business.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 176.60 (as on 25th February 2020), with support from improvement in oil & gas markets needs to be evaluated at a later stage.

Restaurant Group PLC

Restaurant Group PLC (LON: RTN) is a UK based hospitality group with a diverse portfolio of well-known brands. The company presently operates 650 pubs and restaurants in the UK.

Financial Highlights (for the 52 weeks ended 29 December 2019)
The group like-for-like (LFL) sales surged by 2.7% in the financial year 2019, with total sales increased by 56.4% to £1,073.1 million (2018: £686 million).Adjusted profit before tax for the period increased to £74.5 million(2018: £53.2 million). In the financial year 2019, the adjusted EBITDA stood at £136.7 million (2018: £87.9 million). Adjusted earnings per share for the financial year 2019 stood at 11.9 pence (2018: 14.7 pence). The company has delivered growth in operating cash flow of £140.5 million (2018: £88.3 million). The net bank debt of £286.6 million (2018: £291.1 million), with net debt/EBITDA at 2.1x.

The company has delivered the benefits of the Wagamama transaction, with growth in market-leading LFL sales performance of 8.5% and cost synergies ahead of plan. Restaurant group is growing in the Concessions and Pubs businesses, with LFL sales growth of 4.1% in Concessions division and LFL sales growth of 4.0% in Pubs division.

Share Price Performance
 
Daily Chart as at February-26-20, before the market closed (Source: Thomson Reuters)

Restaurant Group PLC shares were trading at GBX 110.30 at the time of writing before the market close (at 9:42 AM GMT) on 26th February 2020 and were down by 6.13% versus the previous day closing price. Stock 52 weeks High and Low are GBX 167.70 /GBX 109.40.  The group’s stock is reflecting the higher volatility as against the benchmark index, based on the company’s beta of 1.52.

Restaurant Group V/S Local Market (FTSE All-Share Index) – 6 months

Source: Thomson Reuters

Growth Prospects for Wagamama Synergy Programme

(Source: Presentation, Company Website)

Wagamama synergy programme is on track to deliver 15 million pounds of cost synergies in 2020 and also deliver at least 22 million pounds in 2021.The company is on track to deliver £7 million of site conversion synergies in 2021.

Conclusion
In 2020, the company’s development capital expenditure will be in the range of £40-£45 million, with 3-5 new Pubs, 8 new Concessions sites, 3-4 new Wagamama sites in the UK, and 5-6 Leisure site conversions to Wagamama. The refurbishment and maintenance capital expenditure for 2020 is expected between £30 million and £35 million. The net cost inflation expected to be £15 million in 2020. The current trading is encouraging with like-for-like sales up 5.3% for the first six weeks of 2020.

The company’s top-line performance has improved significantly with a solid performance from all businesses for the period.

Based on the decent prospects, we have given a "Hold" recommendation at the current price of GBX 109.80 (as on 26^th February 2020, before the market close at 9:40 AM GMT).
 
 
*All forecasted figures and information have been taken from Thomson Reuters.

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