William Hill PLC

Update on 4 Sep 2018 – buy level reached

The last time LEM updated on William Hill PLC (WMH) was 4 months ago. This update comes about as a review of a trading (buy) target being hit.

The company has since passed it’s half-year results for the 26 weeks ended 26 June 2018 where it posted a 3% increase in net revenue, but had a large
exceptional charge and adjustments of £915.9m including £882.8m non-cash impairment to Retail following Triennial Review decision leading to a statutory loss before tax of £819.6m .

The balance sheet remains strong and flexible with net debt for covenant purposes of £272.4m, 0.8x EBITDA.

The market capital at the time of writing is £2.1 billion.

As a reminder the 5 year history of the KPI are set out below:

Key Fundamentals31-Dec-1331-Dec-1429-Dec-1527-Dec-1626-Dec-17
Revenue (£ m)  1486.501609.301590.901603.801711.10
Pre-Tax (£ m)  253.60232.90182.00179.80-75.60
EPS 25.20p23.60p21.60p18.90p27.60p
PE 15.9515.3618.4315.7211.40
PEG -3.27-2.33-2.31-1.230.25
EPS Growth -4.87%-6.61%-7.97%-12.74%46.03%
Dividend Cover 2.312.221.761.512.47
Dividend Yield 2.71%2.93%3.09%4.21%3.55%

What is most evident is that WMH is a low growth, high dividend stock and has been so for a number of years. The last dividend yield was 3.55% with a 2.5X cover, but as once can see the exceptional item far exceeds dividends and in-fact equates to 4 to 5 years of earnings.

William Hill Share Price (Daily)

The company has been growing online footprint with total online net revenue growth of 11%.

This is made up from:

  • Online Sports-book (net revenues +18% and new accounts +16%)
  • Online gaming (revenue growth +4%)

However, retail net revenue was down 3% in a challenging environment for the UK high street (and expected to remain that way).

The US business continues to grow with net revenue up 50% and adjusted operating profit up 132%. The three key areas are:

  • First bet in New Jersey
  • Expanded offering in Delaware
  • Deals signed with 11 casinos in Mississippi and one casino in West Virginia

The revenue split is as follows:

type% group revenue
op profitop profit %
online36%132.540.5%
retail54%16149%
usa3%185.5%
Australia7%17.55%
Total100%329100%

Note: The Australia business was disposed of (announced 6 Mar 2018).

Key wins might come from continued online @ 10% growth with each 10% equating to 4% of total and also potential substantial growth from USA (£100 mill increase in operating profit would equate to 25% increase overall).

For the purpose of trading:

  • 3 stDev range = [217, 326] = 50% volatility.
  • current = 247
  • PE (assuming 200 mill revenue) would be ~ 10x
  • Follow = [-60%, +20%] * current ~ [98, 391]

Additional news (5 Sep 2018)

In typical form, one day after publishing thoughts, the company posts a significant announcement.


William Hill PLC (LSE: WMH) today announces that William Hill US (“William Hill”) and Eldorado Resorts, Inc. (NASDAQ: ERI) have entered into a nationwide partnership for digital and land-based sports betting and online gaming in the United States.
 
The partnership combines the leading sports betting company in the US, William Hill, with the extensive market access of Eldorado – a major casino group with 21 properties across 11 states and a customer base of 23 million people.  Eldorado’s pending acquisition of Tropicana Entertainment Inc. will further extend its reach to 26 properties in 13 states on completion which is expected in the fourth quarter of 2018. 
 
Under the terms of the agreement William Hill becomes Eldorado’s exclusive partner in the provision of digital and land-based sports betting services as well as online gaming.  As a result, William Hill’s reach now extends to 13 states where sports betting is either legal or sports betting bills are tabled.      
 
Within weeks the partners will open William Hill sportsbooks in five properties across three states – The Tropicana in Atlantic City, New Jersey; The Mountaineer Casino Racetrack and Resort in West Virginia and three casinos in Mississippi – The Lady Luck Casino in Vicksburg, Isle of Capri in Lula and Tropicana Casino in Greenville.  Sportsbooks in additional casinos/states as well as digital betting and gaming services will be launched in the months ahead subject to the legislation in each state.    
  
William Hill PLC and Eldorado, who have partnered since 2012 in Nevada, are strongly aligned to grow William Hill US with the company currently involved in discussions with a number of potential partners.

London Stock Exchange, Reuters news service

Key features of the partnership:

  • William Hill becomes Eldorado’s exclusive partner for digital and retail sports betting. The agreement also covers the provision of online casino.
  • The partnership extends the reach of William Hill US and covers Eldorado’s 26 properties across 13 states, plus any new properties it may acquire or develop.
  • William Hill US retains 80% of the enhanced business, retaining strategic flexibility with both parties incentivised to grow digital and land-based sports betting in the US.
  • Eldorado receives $50m of stock in William Hill PLC (equivalent to circa 1.6% of its market capitalisation), subject to a 3-5 year lock up; a 20% stake in William Hill US and a share of profits attributable to its licences, closely aligning the two partners’ interests
  • Investment in sportsbooks in five existing casino properties set to begin imminently with capital expenditure jointly split between the partners.
  • The agreement is for an initial 25-year term.

The partnership follows the Supreme Court decision in May that declared the Professional and Amateur Sports Protection Act (PASPA) unconstitutional.  Since then William Hill, which currently operates 108 race and sports books in Nevada and the state’s leading mobile sports betting app has achieved the widest footprint of any sports betting operator in the US.

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