William Hill delivers the knockout punch?

There couldn't be a bigger contrast in market sentiment in action than comparing today's response to William Hill's results with Ladbrokes downbeat report delivered on Monday.  As of writing the company is up around 5% on the back of its statement, so has William Hill delivered a knockout blow to its rival?

In fact, reports suggest that William Hill are seeing moderating growth, yet the market still seems to like what it sees. However, when it comes to presentation it would appear that William Hill knows better than Ladbrokes how to hide any bad news in its statement as can be seen by what it reported about its Cheltenham results.

Cheltenham results were not as good for us this year but just after the quarter end, Auroras Encore made the Grand National a major success for William Hill, even beating our record win achieved on the race in 2009 when Mon Mome romped home at 100-1. Both of these big meetings proved to be significant attractions for mobile bettors. Our app was downloaded 45,000 times on Grand National day and 51,000 times during the Cheltenham Festival, putting us at the top of the downloads league for both events.

http://www.digitallook.com/news/rns/20838794-14283/WMH-Q1_Interim_Management_Statement_html?ac=,&username=,

Note how the bad Cheltenham results are glossed over by mentioning the Grand National success and the continued growth in digital players. Ladbrokes made no mention of any improvement in trading after Cheltenham, although surely they did well out of the National meeting as well? Ladbrokes statement left enough to doubt that going forward the company is still struggling, whereas William Hill are now seeing the benefits of its investment online, takeover of Sportingbet and relationship with Playtech. Judging by the two statements released this week, Ladbrokes could learn a lesson to be more upbeat about future prospects, unless of course it really is bad.

Going forward William Hill seems to be projected highly on growth company numbers compared to rival Ladbrokes, which increasingly looks like a value play. Of the two its the latter that has more potential upside, assuming of course that management has got it right on the recovery plan that they have.

Here's the numbers before today;


P/E

Ladbrokes  9.9
William Hill 14.3

Dividend Yield

Ladbrokes 4.89%
William Hill 2.66%

EPS

Ladbrokes  18.4p
William Hill  27.27p

The current market cap of William Hill is around double that of Ladbrokes.

As for William Hill, growth going forward might not be as easy.  Right now if it were a two horse race William Hill would be 20 lengths ahead of Ladbrokes with a couple of fences to jump before the winning line, odds are nothing unforeseen happens. In market terms however, the gap between the two is getting increasingly wider and Ladbrokes will feel the heat to start delivering on promises to put things right and reduce that gap.

As an aside, some of the smaller gaming companies might just start to look attractive to bigger players who need to sort their act out. Ladbrokes failed in their bid for Sportingbet and William Hill took them to the races on that one. There are other attractive sector plays like 888 Holdings and 32Red. 888 might be a little too big as a takeover target, but the market cap of the latter is currently around £38 million which is small change to these bigger players.

Right now I feel that both William Hill and Ladbrokes have too many questions about them when it comes to future prospects to feel comfortable about jumping in. With the former you do wonder whether there is a little too much good news already in the price, whereas with the latter you wonder where the good news is actually going to come from. Momentum is with Hill and that can go a long way, but I wouldn't want to be in it if and when it fails to deliver the level of growth the market is looking for going forward.