Winning streak for William Hill

Helped by the later stages of the World Cup, bookmaker William Hill reported plenty of good news in its third-quarter trading update this month - covering the 13 weeks to 28 September. Indeed, group net revenue grew 22 per cent year-on-year, with retail net revenue up 16 per cent in the period and online net revenue up 35 per cent.

Within the online operation, sportsbook turnover jumped 45 per cent, with the gross win margin having reached 8.9 per cent - five percentage points ahead of the prior year's outcome. Overall, online's operating profit soared 80 per cent in the quarter to £26.3m. Meanwhile, the retail operation appears to have shrugged-off 2009's run of bad luck arising from unfavourable football results. The over the counter gross win margin reached 18.2 per cent - well above the prior year’s 15.4 per cent. And the gaming machine gross win margin grew 16 per cent, delivering £844 of gross win per machine per week.

Accordingly, operating profit for the year is now expected to come in at around the top of the current range of analysts’ forecasts. Although management remains cautious about the outlook for 2011, pointing to the planned VAT hike, the tough economic backdrop and the potential impact of the government’s austerity drive.

Panmure Gordon & Co says…

Hold. William Hill has brought forward its third quarter trading update due to ongoing strong trading, which means 2010's profit will come in at near the top end of analysts' forecasts - at roughly £265m. This primarily reflects favourable sporting results, but management are cautious for 2011. Still, the shares aren’t expensive, with an enterprise value (market value plus net debt) to cash profits ratio of 6.5 times and a 4.9 per cent dividend yield. Given the recent fall in the share price, we upgrade our recommendation from sell to hold - but reiterate our 168p price target.

Investec Securities says…

Buy. We are upgrading our full-year adjusted EPS estimate by 5.5 per cent to 19.3p, and our adjusted pre-tax profit forecast by 4.5 per cent to £200.6m. It's encouraging that William Hill has beaten Ladbrokes on every line and we continue to believe that the shares should trade at a premium. Yet the share price rating is not demanding given the combination of relative resilience and further operational improvements, and there's a 4.9 per cent dividend yield. What’s more, there's no evidence of the retail structural decline that appears to have been priced in.