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William Hill left out of pocket

A poor summer across the board means William Hill joins the profit warning club
October 7, 2013

What's new...

■ Profit warning

■ Weak gaming margins

■ Sector trends looking positive

IC TIP: Sell at 407p

Losing streaks can all arrive at once in the gambling world and William Hill (WMH) is the latest bookmaker to run out of luck with a profit warning that showed a £20m shortfall in profits in the third quarter. The sector hasn't had much joy recently after a combination of poor sports results and lower footfall into betting shops narrowing margins for everyone - Ladbrokes also warned about its profits recently, for instance. These factors combined mean that William Hill won't be able to catch up during the remainder of the year.

The fall in win margin explains most of the problems after a summer of punter-friendly results from the Derby to Wimbledon. Overall, this meant that the online betting margin fell from 7.8 per cent in 2012 to 6.3 per cent in the third quarter of this year. In addition, the bookie came out on the wrong side of an eyebrow-raising £2.5m payout to a single customer in August.

But there were some bright spots as punters came back to shops after a balmy summer of barbecues and outdoor drinking. Machine gaming, for instance, should pick up as new "Eclipse" machines are rolled out in shops. Gross win per machine was down slightly at £848, but this should improve as the technology is updated by the middle of next year. In addition, mobile gaming continued its strong growth with net revenues increasing by 126 per cent.

Numis says...

Buy. William Hill has so much good news to share with investors that it is not until page two of the statement that we found that profits have fallen short of expectations by £20m. However, this should come as no surprise given that the main driver was poor sporting results in the third quarter; we downgraded (though not quite enough) recently and this was the basis of Ladbrokes' own recent profits warning. As a result, we are downgrading our 2013 EBIT forecast to £323m from £333m, and moving EPS of 26.1p from 27.1p reflecting the shortfall in profits expectations. The forecasts for 2014 and beyond are left unchanged.

Investec says...

Buy. The full £20m negative impact would see our EBIT forecast drop to £330m in 2013, with pre-tax profits down to £282m. EPS would fall by 7 per cent to 27.6p. Maintaining the forecasts for 2014 onwards rests on the assumption that a continued retail rebound should benefit from the rollout of new gaming machines that began in the third quarter. Alongside that is the continued development of the Australian product that has seen recent more positive deposit trends, reduced customer acquisition costs and a return to normalised sports margins.