Why I’d buy shares in this FTSE 250 recovery play with a big dividend

Here’s why I reckon emerging faster growth from online and international activities could turn this stock around.

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.

FTSE 250 betting and gaming company William Hill (LSE: WMH) delivered full-year results this morning. And chief executive Ulrik Bengtsson said in the report the firm’s operating performance came in ahead of the directors’ expectations.

Around 75% of the company’s business is in the UK, with revenue during the year roughly equally split between online and retail. But the big story is the company’s ambitions to expand abroad. And results from the US are pleasing. Today’s figures reveal to us that just over 7% of revenue came from across the pond, but US revenues surged by more than 30% compared to last year.

A year of transition

Bengtsson reckons 2019 was “a year of transition” because of the acquisition of Mr Green (MRG) and the “strong” growth of the US business. The acquisition of MRG completed in January 2019. The firm is a “fast-growing, innovative” iGaming enterprise with operations in 13 markets such as Denmark, Italy, Latvia, Malta, the UK, Ireland and Sweden.

The directors expect MRG to strengthen William Hill’s online business and help the firm to expand its European coverage. And I reckon we could be seeing the emergence of renewed growth within the business driven by the strengthening of the online offering. I’m encouraged by the company’s progress with international expansion. After all, around 25% of the firm’s business is derived from abroad now.

Bengtsson explained that the regulatory environment had been challenging during the year, but he’s optimistic about the future. The industry is evolving, he reckons, and that situation “brings great opportunities.”

Rebasing the business

And that’s good to hear because the figures in today’s report are dire. Revenue slipped back by 2% compared to the prior year, adjusted earnings per share plunged by 48% and the directors’ slashed the dividend by 33%. It seems that regulatory changes have been taking their toll. Profits suffered badly, for example, because of “the implementation of the £2 stake limit.” 

William Hill had a “decisive” response to the new £2 stake limit by closing 713 shops. That led to an exceptional charge and adjustments of just over £134m, mainly because of redundancies and the closure of those shops. Indeed, the company posted a statutory loss before tax of almost £38m. And sadly, net debt rose to £536m, which compares to net cash from operating activities in the period of £183m – to me, that debt pile is uncomfortable.

However, the share price is around 50% lower than it was two years ago, so the market has already adjusted for the new financial reality. And now that William Hill has rebased its business, I reckon there’s a decent chance that operations could grow from here as the firm pursues its international and online expansion strategy.

With the share price close to 174p, the forward-looking earnings multiple for 2020 sits at 14 and the anticipated yield from the rebased dividend is a tempting 4.6%. I reckon the firm could make a decent recovery play if it can keep on top of its debt load and start reducing borrowings going forward.

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.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

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

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »