Wednesday 19 January 2011

William Hill - first past the post?

William Hill @ 191.8p, +15.1p (+8.55%), released a trading update today ahead of full year results to be released on the 25th Feb.
The highlights being a "predicted" 7% increase to revenues (2009: £997.9m) and a 6% increase to £275m for pre-exceptional earnings (ebitda - Earnings Before Tax Depreciation Amortisation).
Primarily driven by growth in the William Hill Online business and despite a loss of possible revenue in Dec as snow resulted in the cancellation of a number of race meetings

The shine has just been taken off slightly with a brokers note from Peel Hunt questioning what it will take to re-rate the shares “The challenging consumer backdrop, lack of World Cup boost and additional VAT is likely to mean that 2011 will be a tough year. However, a combination of tight cost management and the benefits of the banking deal agreed late last year means that we are now expecting some bottom line growth,” says analyst Nick Batram.

Peel Hunt along with Panmure Gordon have both increased their forecasts to 184p and 188p respectively with Hold recommendations.

Elsewhere, broker Daniel Stewart is suggesting that the success of William Hill online could put pressure on Ladbrokes online offering to perform with a recommendation to switch investment into WH should Ladrokes online fail to deliver. Interestingly, DS also puts forward a view that WH is trading at a 19% discount to its long time rival.

The 2009 financials showed cash increasing to £119.8m (2008: £76.5m), and long term debt reducing to £541m (2008: £1,302.7m) so, the company appears to be focussing on the right things. The dividend, forecast to be inexcess of 4%, is more than twice covered. Similarly, interest payments are more than twice covered.
My slight concern looking at last years numbers is that although long term liabilities have been decreasing, short term liabilities (payable within 1 year), increased by £375m. It could be that this has been part of the banking deal referenced by Peel Hunt but I will need to look for that again in this years results. Putting 2 and 2 together, I wouldn't be surprised to see that figure decrease this year but long term liabilities increase slightly.
Margins also dipped last year to 20% (2008: 28%), but with the planned closure of the telephone service and increasing scale of the William Hill online (and a few favourites losing, of course), will this recover or is it a longer term trend with the VAT increase to now consider.

So, in this years results (2010) to be released on the 25th Feb, I will be looking for:
  • increasing trends on cash and margins and
  • decreasing trends on total liabilities (short and long term).
  • with support from dividend and interest cover
  • cashflow to remain in excess of profits
  • any more news on William Hill online
  • forecast impact of cost pressures.e.g. VAT.
Hmmm.

Link to sharecast.com: William Hill profit at high end of forecasts

Link to sharecast.com: Broker snap: No spark at William Hill

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