William Hill Plc – US partner signed an agreement with US sports network ESPN

FTSE 250-listed William Hill Plc (LON: WMH) is a London, United Kingdom-based Company, which is engaged in the gaming and betting business. The Company’s operations are differentiated into three businesses, namely Online, William Hill US, and Retail.

On 18 November 2020, the Company will announce the trading statement.

Rationale for Valuation – Expensive at GBX 220.00

• Trading near 52-week high, while P/CF, EV/EBITDA and P/E multiples are higher against the Hotel & Entertainment Services industry, reflecting overstretched valuations.
• WMH’s Debt/Equity in H1 FY20 was 1.53x against the industry median of 0.94x, reflecting that the Company has more debt obligations with relatively highly leveraged capital structure.
• According to the S&P Long-term Issuer Rating (May 2020), the Company’s debt rating was BB-, with a negative outlook.
• The stock has underperformed against the benchmark index (FTSE 250) and delivered a negative return of 16.51% in the last two years.
• From the technical standpoint, 14-day RSI stood at ~90.39, which means the stock price could decline in the short term.

Key Risks

• The Company’s operations are impacted negatively due to uncertain political and economic climate for short to medium term.
• COVID-19 has presented short-term challenges. It mainly causes the risk to footfall in the retail operations in the US and UK.
• The material risk related to ongoing consultations arising from the Gambling Commission.

Recent News

On 14 September 2020, the Company stated that Caesars Entertainment (WMH’s US partner) had signed an agreement with ESPN. In a month since the partnership with Caesars Entertainment went live, William Hill has opened 12 branded sports books at Caesars' properties in Nevada, Iowa, and New Jersey.

Financial Highlights (for the 26 weeks ended 30 June 2020, as on 5 August 2020)

(Source: Company Website)

• The Company had shown decent trading before COVID-19, good recovery post-lockdown, and effective cost control during the lockdown.
• Led by a temporary closure of retail activities and COVID-19 disruption to sporting events, the net revenue was down by 32% year-on-year.
• However, the online net revenue for H1 FY20 surged by 1% year-on-year, due to growth in International, successful product launches, and a progressive resumption of sports events post-lockdown.
• In H1 FY20, the adjusted operating profit of £11.8 million was ahead of expectations due to new Online content and swift actions to control costs.
• During the H1 FY20, the Company has raised £218.6 million from the equity placing and had £205 million of the RCF (revolving credit facilities) drawn on 30 June 2020.

One Year Share Price Chart

Daily Chart as of 15 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company could not provide the financial guidance for FY20, primarily due to the uncertainties created by COVID-19. However, WMH stated that it made a good start to the second half of 2020 after underlying profits decreased by 85% year-on-year in H1 FY20 due to impact of the COVID-19 lockdown on live sport. Further, it has decided to return £24.5 million of funds that had been received as part of the UK government furlough scheme. Also, the decision has been taken not to reopen 119 shops.  The Company was trading decently, with a swift recovery of retail. The stock made a 52-week low and high of GBX 28.63 and GBX 225.28, respectively.

Based on the factors as highlighted above, we believe the stock of William Hill Plc is “Expensive” at the closing price of GBX 220.00 (as on 15 September 2020), with support from few catalysts needs to be evaluated at a later stage.

Merian Chrysalis Investment Company Limited – Operating in volatile trading environment.

Merian Chrysalis Investment Company Limited (LON: MERI) is a closed-ended investment group.  It was established to provide investors with access to some of Europe's most advanced, fastest growing, and disruptive private businesses.

Rationale for Valuation – Expensive at GBX 160.00

• Trading near 52-week high and P/E, P/CF and EV/Sales metrics are in a negative zone against the Investment Banking and Investment Services industry.
• In the short-term, the UK Asset management industry is likely to remain under pressure due to increased market volatility in both equity and fixed-income securities.
• The expectations of clients in volatile environment change quickly and place even greater pressure on the industry to respond to their evolving needs.
• From the technical standpoint, 14-day RSI stood at ~71.98, which means the stock price could decline in the short term.

Key Risks

• Weakening macroeconomic environment has resulted from the combination of ongoing political uncertainty and low economic growth around the world, which might result in a decline in the valuations.
• Unanticipated changes in the regulatory or fiscal environment can affect the Company’s ability to deliver its business plan and potentially impact the revenue and future developments.

Recent News

On 11 September 2020, the Company announced that it committed nearly £23 million in follow-on capital to an unnamed portfolio investment, which showed a materially higher valuation against the June 2020 net asset value calculation. On 15 September 2020, MERI confirmed that the asset referred to in that announcement (which was on 11 September 2020) was Klarna Holding AB, which conducted a US$650 million primary funding round. The Company's gross cash position was around £31 million, and the value of the stake in Klarna Holding AB was £96 million.

Financial Highlights (for the period 1 October 2019 to 31 March 2020, as on 26 June 2020)

(Source: Company Website)

• Despite the impact of Covid-19 on valuation metrics, the Company reported decent NAV performance.
• On 31 March 2020, the Net Asset Value (NAV) per share and total net assets decreased by 4.2% against the previous period (30 September 2020).
• The company has further reported that it is currently 90% invested and remains well capitalised, with current available cash of over £36 million.

One Year Share Price Chart

 Daily Chart as of 15 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has delivered a decent performance in H1 FY20, with a decline in NAV per share and total net assets. For the rest of FY20, the group expect several sectors to continue their sideways trajectory. Being a global hub, the long-term prospects of London market still seem to be bright, but the current political impasse has reduced transaction activity in recent months. Moreover, the COVID-19 situation is rapidly evolving, and the group is closely monitoring the impact on the centres. Moreover, the Company remains well capitalised, with current available cash of more than £36 million.

Based on the factors as highlighted above, we believe the stock of Merian Chrysalis Investment Company is “Expensive” at the closing price of GBX 160.00 (as on 15 September 2020), with support from few catalysts needs to be evaluated at a later stage.

*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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