William Hill to shut shops

Shares in William Hill (WMH) have fallen 12 per cent since the full-year results in late February. The decline seems to reflect investors' fears over punitive tax changes later this year and the politicising of the sector as a whole, rather than William Hill's underlying performance. In first-quarter results, the high street bookie revealed its online sportsbook had grown revenue by 39 per cent, with sales via its mobile platform up 78 per cent.

Similarly, pushing into the lucrative US market seems to be progressing according to plan, with operating profit up 188 per cent, and the operations in Australia (accounting for 8 per cent of turnover) are also in good health.

Closer to home, however, the political situation is bearing down on the group's future. An increase in Machine Games Duty (MGD) from 20 to 25 per cent from March 2015 has prompted the group to earmark 109 shops for closure. Abandoning its previous "wait and see" approach to underperforming sites, the outlets are now expected to shut their doors before the end of the year. Some £23m-£24m of exceptional costs are expected, with 420 jobs at risk. Chief executive Ralph Topping described the closures as "particularly disappointing" given the group's efforts to expand its retail base during the recession.

Numis Securities says...

Buy. We remain positive for two reasons. First, we believe concerns over the regulatory and tax risks have peaked and that certain policies, including the Point of Consumption (PoC) tax, will not be introduced as planned. Second, if life for William Hill is going to be tough, it will be worse for its smaller and less well-financed sector peers. The first quarter showed good progress online, particularly in the mobile division and in Australia. The positives were offset by very poor football results, but William Hill is a market leader and will soon pass a peak of concern over regulation.

Deutsche Bank says...

Buy. We think investors have lost sight of the approaching World Cup. This is likely to earn William Hill approximately £20m of extra cash profits in the second quarter. Sporting results have been below average of late, yet the group's online football operations are probably five times bigger than in 2010, so it should earn substantially more than the £15m of cash profits taken during the last World Cup. We predict revenue growth of 6 per cent in 2014, delivering pre-tax profit of £307m and EPS of 29.4p.