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William Hill gets FOBT-ed off in 2018

A non-cash impairment on the UK retail business wiped out full-year profits
March 1, 2019

Regulatory changes in the UK took a toll on William Hill (WMH) during 2018. Exceptional changes totalling £922m wiped out the bookie’s profits. Around £883m of this charge was a non-cash impairment to the UK retail business to reflect the upcoming cut to the maximum stake allowed on fixed-odds betting terminals (FOBTs) from £100m to £2.

IC TIP: Buy at 189p

The bookie has indicated that it could close up to 900 outlets, with the number of closures ultimately dependent on how gamblers change their habits. Chief executive Philip Bowcock said the group is modelling different scenarios of whether punters will just bet £2 more often, or shift to other gambling methods. Ultimately, each store closure will cost around £50,000.

William Hill is making progress in fulfilling its American ambitions. Since legislation banning sports betting was overturned in May, six states have legalised this form of gambling, and William Hill is present in all six. Five of these states have more of a retail presence, while New Jersey punters have embraced digital channels. The advantage of retail is that less must be spent on marketing, so it will make a profit faster, whereas digital is higher margin over the long-term, but the initial marketing spend is high. Mr Bowcock said that while states are keen to legalise sports betting, improving their coffers in the process, they are doing so cautiously.

Analysts at Numis expect pre-tax profits of £108m in 2019 giving EPS of 10.9p, compared to £200m and 20.6p in 2018.

WILLIAM HILL (WMH)   
ORD PRICE:189pMARKET VALUE:£ 1.65bn
TOUCH:188-189p12-MONTH HIGH:340pLOW: 148p
DIVIDEND YIELD:6.4%PE RATIO:NA
NET ASSET VALUE:34p*NET DEBT:103%
Year to 01 JanTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151.6123423.612.2
20161.5918521.612.5
20171.6018118.912.5
20181.59147-9.713.2
20191.62-722-83.112.0
% change+2---9
Ex-div:25 Apr   
Payment:06 Jun   
*Includes intangible assets of £686m or 78p per share