William Hill delivers results with a surprise

I mentioned William Hill yesterday and the possibility that at the first sign of something bad their share price might take a hit after being a very good momentum play for some time. Well, today appears to be that day.

Shares in William Hill sank sharply on Friday morning as investors gave a cool reaction to the High Street bookie's first-half results.

Even Canaccord Genuity, which labelled the figures as "strong", kept its 'hold' recommendation and 438p target price for the shares, highlighting headwinds for the company in 2015.

The increase in profits in the first half was better than expected, the broker said, though earnings growth was "flattered by a particularly low tax charge".

Retail was boosted by a strong Grand National and a general good run of results, helping to offset a higher Machines tax. Meanwhile, Online delivered strong growth, but this was outweighed by a weaker contribution from Sportingbet.

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=14283&ac=,&username=,&action=news&story_id=21069911

Shares are down around 7% so far on this news.  It would seem that the major hit came from the UK Government's new machine games tax, first mentioned as a possible drag on the sector here. It's interesting that the market largely overlooked the potential for a negative reaction from the imposition of new taxes, as long as momentum was with William Hill for most of this year, until now that is. The tax itself is not a surprise, but it would appear that William Hill while delivering a decent enough performance was not able to make up in other areas of its business to offset the negative tax in a way that would mean the market would overlook it.

Does this mean the end of the bull run for the company? Possibly, but a look at how the charts develop over the next few weeks will be needed to see whether the upward trend holds. For now, a little froth on the share price has been taken off.

William Hill, Ladbrokes and 32Red, where next?

It's been a while since I looked at the UK gambling sector (for anyone interested in previous posts click on the labels below) and it seems to be a sector that continues to recover, although some companies appear to be hotter and more in favour than others. I came across this analysis today that is worth a read and it does save me the time of going into the fundamentals.

http://bulmerinvestments.com/betting-on-gamblers/

It covers William Hill, Ladbrokes and AIM tiddler 32Red, which was flagged up here some time ago as one of the few potential smaller company takeover targets left in the sector. Naked Trader Robbie Burns seems to have bought it with a view to holding it in the hope of a takeover at some stage.

These three can actually be compared to a three horse race, William Hill being the class of the field, Ladbrokes, the underachiever who promised so much but has failed to deliver and 32Red a complete outsider with bags of potential. Bookies would probably have William Hill as the odds on favorite, with Ladbrokes and 32Red vying for some long shot money.

William Hill's recovery in the last couple of years seems to go on and on. The share price is now heading towards 500p and there is a lot of good news and expectation in that price going forward. They are no longer cheap and it would be easy to imagine a bad set of results hitting the share price hard, but so far the company has delivered.

Ladbrokes is the opposite.  They have everything to prove and will hope that their deal with Playtech leads to an improved bottom line from their online offering. If they are finally putting things right then compared to William Hill they are cheap. The article above makes a case for the upside if Ladbrokes has finally got its act together.

32Red has the attraction of perhaps being an eventual takeover bid from one of the bigger players. In the meantime it is a decent company in its own right and from next Monday as an AIM share it can be put in an ISA. It's more of a gamble than the other two, but if it attracts the interest of a bigger player it won't be sold for its current forward P/E of around 10.

William Hill gallops into the FTSE100

The pending merger between Xstrata and Glencore has left a space for a new entrant to the FTSE100 and William Hill after some pretty impressive momentum in the last 6-9 months sneaked up to take it on the line. Trouble is, it is another momentum stock with stretched fundamentals now joining the 100. A year or so ago it had an impressive dividend yield of over 4% which is now around 2.5%.

Meanwhile, Ladbrokes has raided William Hill to fill a position where they are playing catch up with their FTSE100 rival.

British bookmaker Ladbrokes has hired Jim Mullen from William Hill to run its online operations as it tries to make up lost ground on its larger rival in the sector.

Ladbrokes' attempts to galvanise its digital business are borrowing heavily from the success enjoyed by market leader William Hill, which entered the FTSE 100 index of leading companies on Wednesday.

Mullen will have the title of director, digital when he starts work in November, Ladbrokes said on Wednesday. He worked as chief operating officer at William Hill's online operations.

Ladbrokes has formed a partnership with software developer Playtech to develop its online business, a fast expanding part of the gambling market. The companies launched a digital marketing services operation on Wednesday, to be based in the Israeli city of Tel Aviv.

http://au.news.yahoo.com/technology/news/article/-/16967171/ladbrokes-recruits-william-hill-man-to-run-digital-unit/

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;

Ladbrokes, losing the race

Ladbrokes today updated the market on its first quarter performance. A red flag could be seen before anything was read as the announcement stated "Early release of 1st quarter results".  Early release?  Could spell trouble and it did.

Ladbrokes had always planned for a reduction in group operating profit during the quarter due to known taxation and cost headwinds in UK Retail and the expected H2 weighting of growth in Digital revenues.

This reduction has however been exacerbated by softer trading than expected in Q1, particularly in the second part of the quarter, during which we saw a number of one off factors including; a significant reduction in profit from Cheltenham, lower revenues from high value gaming customers and a proportionately higher impact from horseracing cancellations.

When coupled with the revised 2013 outlook for our Digital business following our deal with Playtech we now expect group operating profit for the year to be at the bottom of the existing market range, in light of which the Q1 IMS has been released today.

http://www.digitallook.com/news/rns/20826495-10046/LAD-Early_Release_of_1st_Quarter_Results_html?ac=,&username=,

So not good and the share price, down around 8% today reflects that. However, the middle paragraph above makes you wonder why Ladbrokes felt the need to get their announcement in early, especially as rival William Hill is due to report on Friday.

The Week Ahead 1 - 15th to 19th April 2013

Going to try something new which I will try to get out before the start of the market week in future and that is a week ahead feature. This will focus on what is happening in the week to come, covering announcements and company news. It will not be all inclusive or just a list of dates as that can be found elsewhere, but will spotlight a few situations with comments worth watching out for.

Data:

15th April 

China GDP.

16th April 

GB CPI/RPI

Euro Zone CPI/RPI

US CPI

Germany Zew Survey Economic Sentiment

17th April 

GB BoE minutes

US Fed Beige Book

18th April 

GB Retail Sales

US Initial jobless claims

Company Announcements

Online gambling one step closer in the USA

Some of the biggest movers in the UK markets this morning have been in the gaming sector on the back of a report from the US that legalized online gambling is one step closer.

Gov. Chris Christie (R-NJ) conditionally vetoed the online gambling bill that would authorize Atlantic City casinos the ability to offer New Jersey residents the ability to play poker, roulette, baccarat, blackjack, craps, big six wheel, slot machines, mini baccarat, red dog, pai gow and sic bo online. Despite the conditional veto tag, proponents of the expansion of online gambling believe this is a big victory for the industry.

According to the New Jersey legislature glossary, a conditional veto is "a veto in which the Governor objects to parts of a bill and proposes amendments that would make it acceptable. If the Legislature re-enacts the bill with the recommended amendments, it is presented again to the Governor for signature."

http://espn.go.com/poker/story/_/id/8925250/new-jersey-internet-gambling-bill-conditionally-vetoed-state-allow-online-gambling

This has had a dramatic effect on some of the UK online players this morning so far.

Bwin.Party up 20%
888 Holdings 17%
Betfair 4%
32Red 3.42%

Even behemoths William Hill and Ladbrokes are up slightly on the back of this news, the former has been positioning itself in the US over the last couple of years for the likelihood that sooner rather than later online gambling will be legalized.

While some investors will probably steer clear of these type of "sin" companies because of objections to gambling, for those that don't have a problem with the industry there is massive potential going forward, especially once countries like the US open their doors and legalize the industry. The sky is potentially the limit if the same were to happen in China, although no one should bet on that happening for some time.

32Red, the next Sportingbet?

Smaller companies in the gaming sector are always likely to be talked of as possible takeover targets of bigger predators looking to expand their empire, Sportingbet being one that was long put in such a category before finally accepting a bid from William Hill . For investors a takeover is never guaranteed and even if it does happen it might not yield the return that some thought possible, but one of the attractions of buying into smaller companies is that at some stage they might attract the interest of someone bigger. 32Red looks to be one of those attractive, solid smaller gaming companies which even if it doesn't attract any interest is worth investigating in its own right.

It reported fairly solid numbers this morning;

Trading in 2013 to date has been strong across the Company's products with Gross Win for the first twenty-one days in January up 15% on an exceptionally strong corresponding period in 2012 that benefitted from significant promotional activity.

Commenting on the performance, Ed Ware, CEO of 32Red, said:

"32Red has enjoyed another strong year of revenue and profit growth, driven by new player recruitment and our focus on the delivery of exceptional levels of service and entertainment to casino players.   

The Group will announce its preliminary results on Thursday, 21 March 2013.

http://www.digitallook.com/news/rns/20640312-134513/TTR-Trading_Update_html

They are expecting to deliver profits in line with market expectations for 2012 and the current P/E is 13.5, forward P/E 11.2, which for a company still experiencing considerable growth isn't too demanding. In general, its fundamentals look fairly solid based on past performance.

One to note for that March result date.

Sportingbet, losing its shine?

What with the potential takeover of Sportingbet by William Hill and GVC Holdings still in limbo you might think that producing a poor set of results could be a negative on proceedings and explains a little why the company share price has fallen to around 45p. Actually, for the purpose of the takeover, parts of today's results are probably welcomed better than others.

The BBC reports;

Online gambling firm Sportingbet has reported a fall in first quarter revenues citing "challenging" conditions."

European online poker revenue collapsed nearly 50% reflecting "continued structural decline" of the game, the company said.

The total amount wagered in the three months to 31 October fell to £594.3m, compared with £693.7m for the same quarter last year.

Group revenue fell £21m to £38.8m.

Group chief executive Andrew McIver said: "It was a challenging first quarter but a very strong November".

Sports margins in Australia had been "particularly strong", the company said, after a 29% increase in active customers and rapid growth in the amount being wagered via smartphones and other hand-held devices.

http://www.bbc.co.uk/news/business-20551977

Looking at that report again we see the word "challenging" being used quite a bit (key words in company reports). Could it also be a signal of challenging conditions for the likes of William Hill and Ladbrokes when they next report? Perhaps not, but 2013 might not be as rosy for them as recent times. (Panorama, undercover in the bookies)

However, it was reported before that William Hill were particularly interested in the Australian growth side of the Sportingbet business and they will look at the "particularly strong" results there with interest. Sportingbet investors hoping for that 60p+ pay off may be hoping that the takeover gets sorted sooner rather than later.

Sportingbet, William Hill, GVC takeover update 2

Looks like this one may go to the wire as William Hill gets an extension on the deadline.

(Reuters) - William Hill (WMH.L), Britain's largest bookmaker, has been given until next month to submit a formal bid for online gaming company Sportingbet (SBT.L) following a 530 million pounds ($841 million) takeover approach.

The Takeover Panel, which oversees mergers and acquisitions, has extended the deadline for an offer until 1700 GMT on December 4 to allow discussions to continue between Sportingbet, William Hill and joint bidder GVC Holdings (GVC.L), Sportingbet said.

http://uk.reuters.com/article/2012/11/13/uk-sportingbet-william-hill-idUKBRE8AC07M20121113

Meanwhile the share price of both William Hill and Sportingbet drift lower, the latter now around the 50p mark, with the potential takeover being 61p.

Is there a chance it won't happen?

The complication for William Hill is to try to separate out the Spanish business from operations in other parts of Europe where the regulations are less clear-cut.

Partner GVC is planning to acquire those operations in "grey markets" where regulatory risks are higher.

http://uk.reuters.com/article/2012/11/13/uk-sportingbet-william-hill-idUKBRE8AC07M20121113

Previous posts;

Will Sportingbet finally get a takeover bid?

Sportingbet, William Hill, GVC takeover update

Panorama, undercover in the bookies, bad news for William Hill and Ladbrokes?

In recent weeks, what with the Jimmy Savile scandal, the BBC flagship current affairs programme Panorama has had bigger fish to fry than last night's expose' of the UK bookmaking industry. Here's how the BBC set the scene.

Even in recession-hit Britain, the gambling industry is still making a profit - £5.6 billion last year. With casino-style gambling now available day or night at the touch of a button in our homes and on our phones, Panorama explores its popularity... and reveals a darker side.

Reporter Sophie Raworth hears from those who have found their lives spiralling out of control, and from industry insiders who say violence and frustration, linked to fast-paced high-stake gambling machines, are increasing in our high street betting shops. Panorama goes undercover in some of Britain's bookies to test those claims.

http://www.bbc.co.uk/iplayer/episode/b01nm27r/Panorama_Gambling_Nation/
(BBC Iplayer link only available for 7 days, not for those outside the UK)

The fast-paced high-stake gambling machines that is referred to above have been one of the major growth areas for High Street bookies like William Hill, Ladbrokes and others. It is also an area where politicians appear keen to focus on when it comes to increasing the taxation take. The Government in this year's budget made plans for raising more in tax from the gambling machines.

Budget 2012: New gaming machines tax 'puts 11,000 jobs at risk'

Bookmakers fear 11,000 jobs are at risk after the Government unveiled a new tax on gaming and fruit machines, which is expected to cost the industry £50m a year.

It goes on;

Sportingbet, William Hill, GVC takeover update

Looks like this one may go to the wire, but the latest offer isn't that much of an improvement on the old one. Unless there is a change of heart it would seem that William Hill and GVC don't believe Sportingbet is worth as much as some analysts have suggested. This one could easily fall through.

WILLIAM HILL’S proposed takeover of online bookie Sportingbet looks set to go down to the wire this week, after the Sportingbet board knocked back a second bid for the company last week.

Sources close to negotiations said yesterday that William Hill, together with GVC Holdings, made an improved informal bid for Sportingbet late last week, after a formal offer of 52.5p per share was rejected last month. The new offer, at over 55p a share, was a significant improvement but still short of the 60p or more that Sportingbet wants. 

http://www.cityam.com/latest-news/second-william-hill-bid-rejected-sportingbet

They have until tomorrow to make a bigger offer or at least show that both sides want to keep on talking. Sportingbet is down around 5% so it looks like the market may well have decided it isn't likely to happen.

Original post can be found here;

Will Sportingbet finally get a takeover bid?

http://www.blogger.com/blogger.g?blogID=4285330955624173039#editor/target=post;postID=2500241780786594703

UPDATE

Will Sportingbet finally get a takeover bid?

For some time there has been talk that Sportingbet would be a takeover target for one of the bigger players in the bookmaking industry.  Ladbrokes pulled out of one potential bid a while back and ever since then the share price of Sportingbet had been somewhat depressed, but it had its supporters who felt that it was cheap and undervalued regardless of any potential takeover. However, the price has been flying recently and yesterday confirmation came that William Hill was in the early stages of launching a potential bid with GVC Holdings.

Any offer would be substantially in cash with an element of GVC paper. William Hill intends that the entity initially acquiring the Regulated Businesses would be a subsidiary of William Hill and not William Hill Online. GVC and William Hill reserve the right to amend the terms and structure of the possible offer in due course.

The Boards of William Hill and GVC believe that by acting in combination they represent a highly credible possible offeror for the entire Sportingbet business, substantially in cash.

No formal approach has been made to the Board of Sportingbet and there can be no certainty that any offer will be forthcoming and nor as to the terms on which any offer might be made.

In accordance with Rule 2.6(a) of the Code, William Hill and GVC must, by not later than 5.00 p.m. on 16 October 2012, either announce a firm intention to make an offer for Sportingbet in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer

http://www.digitallook.com/news/rns/20373524-14283/WMH-Response_to_recent_share_price_movement_html

There is likely to be much speculation and talk about what any bid price might be, but already there are predictions which make it substantially more than the current price of around 54p.

William Hill and GVC would not comment on the possible value of a bid but Ivor Jones, gaming analyst at Numis, suggested any potential buyer would have to pay as much as £1 a share.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9554300/William-Hill-considers-joint-offer-for-Sportingbet.html

To some degree Sportingbet has been here before with the Ladbrokes takeover talk that saw the price rise then fall a long way when the bid collapsed.

William Hill - Still a firm favorite - update

William Hill, which was mentioned in this post a while back produced another set of solid numbers today.  The trend for William Hill has been up for some time, a rise of about 30% in the last 6 months so there is a lot of good news in the price right now and it is today touching 300p.  That's not to say that it can't go higher, William Hill has momentum right now and is a good example of letting the trend be your friend.  

Ladbrokes fail the digital hurdle

I mentioned the other day the turnaround in the fortunes of William Hill, a UK bookmaker that had been struggling for some time, at least in the eyes of the City, but now seems to be on the road to recovery.  Not so the other big UK bookmaker Ladbrokes.

Ladbrokes had one of those investor meetings today which included some news that the markets took badly.

The investment in technology, digital capability and marketing has continued as scheduled in H1 with costs overall in line with plan. As stated previously, we anticipated that the phasing of our investment programme, increased marketing expenditure, planned operational losses associated with new international licences and the withdrawal from certain international markets would result in a decline in Digital profits year over year.

This decline has however been exacerbated primarily by a poor sportsbook margin in Q2 and by delays in the delivery of technology projects leading to lower than expected revenue in Q2. As a result we now expect Digital profits in H1 to be down further than anticipated at around half that delivered in H1 2011.

The market reaction has been instant and destructive, Ladbrokes shares down around 9% at writing, but is this the usual case of a knee-jerk city reaction that when the final figures come in is a setback but not a disaster?  


Should be noted that this is a "profits warning" on the digital/online takings of the company, an area where they have seriously lagged behind competitors anyway, but they did go on to say.

Despite this due to outperformance, particularly in the Retail businesses we expect to meet market expectations for H1 and remain confident that ongoing development of the Digital business will enable us to grow Digital profits in 2013 and beyond.

So, they expect to meet market expectations and unless more profit warnings are to follow, today's fall may well be overdone in the greater scheme of things, but for today Ladbrokes seems to be getting the Tesco treatment from the city.

Meanwhile, Ladbrokes rival William Hill seems to go from strength to strength despite falling in sympathy today.

William Hill completes US acquisitions

28 June 2012

William Hill PLC (LSE: WMH) (William Hill or the Group), the UK's largest bookmaker, confirms that the acquisitions of American Wagering, Inc. (AWI) (OTC:BB: BETM), Brandywine Bookmaking LLC (Brandywine) and the racing and sportsbook assets of Sierra Developments, trading as Cal Neva, have been completed

 Company announcements from DigitalLook.

William Hill, a firm favorite

UK bookmakers like William Hill and Ladbrokes have one big thing going for them which most companies would love to have, an almost captive consumer.  Gambling is a habit that a little like smoking is hard to shake once it gets you. William Hill would qualify as a sin stock, a little like tobacco and defense companies, it may not be to everyone's investment taste because of its business model, but there is money to be made from gambling.

On Friday, the company got the green light to start operating in the the US.

After being awarded the gambling licence, Hill will go ahead with the $55m (£35m) acquisitions of three sports books businesses: American Wagering, Brandywine Bookmaking and Cal Neva, which it announced some time ago. 

This will see William Hill running roughly two-thirds of the 180 bookies within Las Vegas casinos. They will be rebranded William Hill over time and the group has also applied for an online gambling licence. 

Ralph Topping, chief executive, said: "We are delighted to have been awarded our licence to operate in Nevada. This now enables us to establish William Hill's first-ever US operation."

 http://www.independent.co.uk/news/business/news/william-hill-wins-nevada-licence-7876685.html

The US is an important market for a company like William Hill to get into, in part because despite the country being seen as a land of risk taking and free enterprise, gambling seems to be frowned upon.  US law, as can be seen in recent actions against online poker sites, was and is pretty strict when it comes to gambling.  This might seem strange coming from the country where stock trading on Wall Street often looks like gambling, but quite a few individuals and businesses have found themselves on the wrong side of US gaming laws in recent years.  William Hill now has a foothold.

Even better for William Hill is that despite 4-5 years of austerity in the UK, their home market has held up quite well and only recently has this been reflected in the share price.

UK Pre-tax Profits

2008   £293.3 million
2009   £120.9 million
2010   £193.3 million
2011   £187.4 million

Dividend Yield

2008   5.1%
2009   3.9%
2010   4.8%
2011   5.1%

Dividend cover is currently at 2.5.

Liabilities are also heading in the right direction.

2008   £1478.30 million
2009   £1094.10 million
2010     £972.60 million
2011     £908.70 million

Current net assets, £899.60 million.  Five years ago net assets were listed at approximately £233 million against total liabilities of almost £1500.00 million.

Its clear that William Hill is heading in the right direction, but it has had a good run recently, the share price being around 180p last December, 279p at time of writing.  Back in 2007 it almost got to 700p peaking out at around 670p. There may be a better buying opportunity ahead although the share price has held up quite strong despite the market volatility of recent months.  The company is one to watch, most gamblers would probably be better off buying into this than having a bet on the horses or football.

Data from DigitalLook