With the William Hill (LSE:WHM) share price down around 50% since January, the incoming CFO backing out in March, its dividend being suspended and Covid-19 estimated to wipe out £110m of earnings (2019 operating profits were £147m), the scene of impending doom has been set for the company, affectionately known as “Bill Hill”. Indeed, you’d need to be a bit of a punter yourself to invest in Uncle Bill, wouldn’t you?
Here’s the case I am making today.
Short-term prospects
The dramatic decline in the William Hill share price is a clear reaction to the Covid-19 crisis that has engulfed the world. William Hill is particularly reliant on its retail business compared to competitors, comprising 45% of its 2019 revenues from 1,568 shops across the UK. With the UK currently in lockdown and future movement uncertain, this is bad news. This is further exacerbated by the cancellation of many of the world’s sporting events, accounting for 42% of online revenue.
However, opportunities exist in the virtual sports market, along with the continuation of the online gaming market. Additionally, thanks to the UK government’s furlough scheme, William Hill will be able to significantly reduce its £395m worth of staff costs (40% of operating costs) for the time being. Advertising expenditure associated with the big sporting events will also drop.
This should help keep it afloat during this period and the market agrees, with the share price doubling since its mid-March low, although it is still trading at a price-to-earnings (P/E) ratio of around 8.5, a significant discount to listed peers.
Long-term outlook
Yes, regulation poses a threat, particularly with the implementation of the £2 stake limit on betting machines in the UK, which led to the decision to close 713 shops in 2019. However, William Hill is increasingly a global player, with 24% of its revenue now coming from outside the UK, partly thanks to the 2019 acquisition of European operator Mr Green.
Particularly exciting are its US operations, where having been one of the first movers (it has a 24% market share), it is well positioned to take advantage of the Supreme Court’s 2018 decision to legalise sports betting, a market expected to be worth $8bn by 2025. Also, its website and app are becoming slicker, which should aid its online operations.
The Supreme Court decision is also an example of how much maligned regulation can also present opportunities. Indeed, it is also possible to make an argument for increased regulation being beneficial to big players such as William Hill, due to the increased barriers to entry that may result in a higher market share.
Therefore, whilst the timing is uncertain, eventually normality will resume and I believe William Hill should thrive, with most of the bad news behind it. So rather than answer Uncle Sam’s call for aid, perhaps answer Uncle Bill’s: I think it’s significantly more likely to give you something back!
