Tuesday share tips: Time to cash in William Hill?

on Jan 19, 2016

British betting giant William Hill Plc (LON:WMH) could be facing a tough year, with a flurry of M&A activity last year resulting in many competitors joining forces to come out stronger, while falling profit margins erode investor confidence, The Telegraph’s Questor said yesterday.

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The adviser noted that the retail business of William Hill had operating profit of £193 million for 2015, at revenues of £911 million, for a margin of 21 percent, which compares with 30 percent for 2008. Furthermore, Questor noted that the retail profit margin is expected to fall to around 15 percent within the next two years.
“Companies in the gambling sector have to run faster just to stand still,” Questor wrote yesterday. “The problem is it is very difficult for them to increase revenue from a mature retail model where high streets are already full of betting shops.”

Questor argued that mergers are the only way for betting companies to achieve earnings growth for shareholders, and underscored that most of William Hill’s competitors have come out of 2015 stronger following a flurry of mergers and acquisitions.
William Hill is set to make a big marketing push this year and its balance sheet is “certainly strong enough” to accommodate heftier spending. Still, at 16 times earnings, shares looks expensive, Questor noted.
In contrast, Angelique van Engelen of The Motley Fool UK argued that “there is enticing upward potential”.
She argued that the firm’s online division will continue to expand quickly, and highlighted adverse forex movements as something to watch out for.
“William Hill company is offering bargain value at the moment. So much so that at this level, it is a takeover target,” van Engelen wrote last week. “I believe that this is a great value share at an incredibly low price.”
William Hill’s share price had dropped 0.77 percent to 377.10p as of 13:19 GMT today, underperforming the FTSE 100 which had gained about two percent. The company has performed in line with the broader market so far in 2016, dropping about five percent. The stock closed 2015 with a gain of about nine percent, as compared with a five percent drop for the FTSE.


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