Why William Hill plc Looks A Better Buy Than 888 Holdings Public Limited Company After Bid Failure

William Hill plc (LON:WMH) has failed to buy 888 Holdings Public Limited Company (LON:888), but this isn’t necessarily bad news, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares in 888 Holdings (LSE: 888) shot higher last week on news that William Hill (LSE: WMH) had launched a 203p per share bid for the firm.

Today, 888 shares opened down by nearly 15% after the firm admitted that the deal was off, as one of 888’s major shareholders — thought to be one of the firm’s founders — had refused to accept William Hill’s offer.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

The bid was seen by most analysts as pretty generous, valuing 888 on around 14 times earnings before interest, tax, depreciation and amortisation. Indeed, even after today’s sharp fall, 888 shares are still trading on 17 times 2015 forecast earnings.

That looks enough, to me, as while 888’s Casino offering — which accounts for around half of revenues — is performing well, the firm’s other two largest divisions, poker and bingo, were described by the firm as “low growth” and “mature” respectively in last year’s interim results.

888’s fourth and final division, sports betting, is growing fast but is very small — in my view, this is an area where William Hill should surely be able to hold its own.

Is William Hill a better buy?

William Hill would probably have struggled to afford to pay more than its initial offer for 888, but I think the firm’s management should be praised for resisting the temptation to overpay.

William Hill is responding to rising tax and regulatory headwinds in the UK with strong overseas expansion, and is in the process of transferring recent acquisitions such as Sportingbet to the William Hill brand.

The firm’s strong historic presence in the UK’s sports betting market should position it well to maintain long-term market share.

Although William Hill is reliant on fellow FTSE 250 member Playtech for its online technology, I don’t believe this is a major weakness, given the proven quality and popularity of Playtech’s product.

Should you raise your stake today?

William Hill isn’t exactly cheap, but shareholders may yet be grateful that the firm avoided the injection of debt or equity dilution that would have been required to fund the purchase of 888.

Trading on a 2014 forecast P/E of 13.0 and a prospective yield of 3.2%, William Hill’s valuation is more appealing than the FTSE 250 average of 19.4 and 2.5%, in my view — and I believe the bookmaker’s shares represent a decent medium-term bet.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to aim to use the Warren Buffett method to make a million, starting today

Why do investors love Warren Buffett so much? His 3.6 million percent investment return since 1965 probably has a lot…

Read more »

Various denominations of notes in a pile
Investing Articles

3 big income stocks hiding in plain sight

There are plenty of high-paying income stocks flying under the radar right now. Paul Summers offers three examples he likes.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 FTSE 100 shares I’m buying in July

Andrew Woods wonders whether these two FTSE 100 shares could bring growth to his portfolio and if he should add…

Read more »

positive mental health woman
Investing Articles

2 dirt-cheap stocks investors should buy to hold until 2030!

Recent market volatility means lots of UK shares now offer brilliant value. Here are two ultra-cheap stocks on my radar…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

My top 7 dividend shares to buy as inflation soars

Dividend shares can be an excellent way to earn some passive income. Our writer considers seven top picks to help…

Read more »

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »