Why I sold William Hill plc in February

Paul Summers explains why he turned his back on one of the UK’s biggest bookmakers, William Hill plc (LON:WMH).

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the end of February, I sold my holding in bookmaker, William Hill (LSE:WMH). This article will detail why I chose to relinquish my shares in the company and why I won’t be returning soon.

When the fun stops, sell

As investments go, William Hill has been on a poor run of form. A disasterous Cheltenham Festival coupled with Leicester City’s miraculous Premier League title win has led the £2.36bn cap’s share price to tank in recent weeks. It now stands at just over 304p. I sold at 399p. Over the years, I was content to sit back and collect the dividends believing that the company’s solid track record and fairly predictable earnings would make it a worthwhile investment, despite ever-increasing industry regulation. However, the apparent lack of activity compared to its peers and a less-than-positive performance over the last year forced my hand.

A recent trading statement from the company doesn’t make good reading. Despite an encouraging performance from its US business, the company’s online net revenue was down by 11%. Overall, group net revenue declined by 3%.

The Leicester effect

William Hill’s CEO, James Henderson, believes that Leicester’s title win will encourage more bets from people on outsiders, including those who normally shun the gambling industry. While it’s probably true that a few irregular gamblers may be tempted to place a cheeky bet on Burnley winning the title (or Leicester repeating their feat), this isn’t a trend that will be sustained in the long term. Leicester’s triumph was an anomaly, albeit a highly refreshing one. Moreover, all bookmakers have recognised the need to reduce the odds of such an event happening again. The days of 5,000-1 are over, I feel. If the odds are no longer attractive, punters will be disinclined to bet.

Of course, it may be argued that Euro 2016 will do the bookmakers (and their investors) no harm at all, so long as England, Wales, the Republic of Ireland and Northern Ireland aren’t ejected from the competition too early. Fair point. But a decent run by any of these teams will surely benefit all UK-based bookmakers. In the incredibly competitive market that William Hill operates in, it’s hard to see how the company can rise above its peers with significant structural change. This may take the form of a renewed bid for 888 Holdings (LSE: 888), a company William Hill attempted to buy last February. The prospect of a takeover may make the former more attractive to investors.

Contrarian bet?

Naturally, the recent sharp drop in the share does present an opportunity for contrarian investors to place their bets on a recovery in William Hill’s fortunes. With a forecast P/E of just over 12, the shares are certainly looking cheap. A dividend yield of 4.22% will also be attractive to patient investors, confident that things can be turned around.  Personally, I’m not tempted to climb back on board at the current time. There needs to be evidence that the company is making some kind of progress in terms of addressing the decline. William Hill could be a winning investment but for me, there are companies elsewhere with better prospects.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »