William Hill PLC

Bristol, United Kingdom-based William Hill PLC (WMH) is a 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 company’s operations are differentiated in five operating segments: Retail, Online, US Existing, US Expansion, and Other. 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.

On 21^st November 2019, the company will release the Trading statement.

Recent News
On 20^th September 2019, the company is on the hunt for the United States deals to promote its brand as competition intensifies in the recently legalised American sports betting.

On 5^th September 2019,the company announced that Ulrik Bengtsson was appointed as the Chief Executive Officer Designate of the group, replacing Philip Bowcock, who will step down as Chief Executive Officer and as a Director of the Company with effect from 30 September 2019, signalling the intention of the group to become a digitally-led and internationally diverse gambling company.

Financial Highlights (for the 26 weeks ended 2 July 2019, £million)

(Source: Interim Reports, Company Website)

Revenue of the group remained largely flat over the year as it rose by 1% to £811.7 million, against £802.9 million recorded in H1 2018, reflecting lower revenue in Retail due to the £2 stake limit on B2 gaming products. As the cost of sales remained unchanged, gross profit rose from £606.3 million in H1 2018 to £614.5 million in the current period.

Adjusted operating profit fell by 33% to £76.2 milliondue to a 9% increase in net operating expenses, reflecting increased investment in the US business and an increase in the cost of acquiring Mr Green. The proposed closure of around 700 shops and the implementation of the new £2 stake limit contributed to a statutory loss before tax of £63.5 million, while loss before interest and tax was £38.1 million, though losses declined considerably over the last year. Adjusted profit before tax declined to £50.8 million, reflecting a 47% fall.

Statutory loss per share stood at 7.1p(H1 2018: loss per share of 93.5p), while adjusted earnings per share fell by 42% to 5.3p, resulting in a 38% decrease in dividend per share to 2.66 pence. Closing net debt/EBITDA was 2.0x (26 June 2018: 0.8x and 1 January 2019: 1.0x), as the group issued corporate bond worth £170.2 million, and operating cash flows were £72.4 million.

Share Price Performance

Daily Chart as at September-30-19, before the market closed (Source: Thomson Reuters)

On 30th September 2019, William Hill PLC shares were trading at GBX 186.95 at the time of writing before the market close (at 11:52 AM GMT), down by 0.64% against the previous day closing price. Stock's 52 weeks High and Low are GBX 257/GBX 128.41. The company’s stock beta was 0.70, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The key risk includesthe regulatory and political risk, cybercrime and information security, competitive landscape, delivery of IT strategy, talent engagement and retention, programme optimisation, and compliance.

The company has shown a decline in the financial performance for the first half of the financial year 2019. Although the company’s revenue has marginally increased, the bottom-line performance has declined for the period. The company’s cash balances reduced significantly for the period. The company anticipate losses from the United States business will be in the guided range of $0-20 million for 2019.

The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the business, in particular in the event of an unfavourable outcome in respect of any final agreements between the UK and EU. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations.

The company’s P/E multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations. Currently, the stock is trading near the 52-week mid, suggesting that the upside potential might be limited, and the company can face stiff resistance at the current level.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 188.15 (as on 27th September 2019) based on 9.10x NTM EV/EBITDA (approx.) on FY19E EBITDA (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*The “Sell” recommendation is valid for the current price as covered in the report (as on 30th September 2019).

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