After a brief bounce, the share price of bookmaker and FTSE 250 member William Hill (LSE: WMH) is firmly back in the red today after revealing that it had swung to a massive pre-tax loss of £721.9m in 2018 from a profit of £146.5m in the year before.
Are today’s less-than-comforting full-year numbers — not to mention a cut to the dividend — an indication that investors should continue to avoid the troubled £1.6bn cap?
I think so.
High street woes
To be clear, the huge drop in profits was expected.
As a result of the government’s decision to restrict the maximum stake on all fixed-odds betting terminals to £2 from April, the company has needed to write down the value of its high street estate by a whopping £882.8m.
Going forward, management expects this new rule will reduce profitability from this part of its business by £70m-£100m and could lead to the closure of “up to 900 shops“
The full impact will clearly depend on how punters respond. Hill might believe that its status as the largest operator puts it “in a strong position to capture market share” but I still need to be convinced.
Attempting to put a positive spin on things, CEO Philip Bowcock stated that recent regulatory decisions had at least given the firm some “much needed clarity“, allowing it to devise a new five-year strategy and set a target of doubling profits by 2023. I think the latter may be too optimistic.
It wasn’t all bad…
Don’t get me wrong – there were some positives. Revenue climbed 2% to £1.62bn with the company also reducing net debt by 40% to £308.1m.
Like others in the space, Hill is also seeing growth online.
Here, operating profit climbed 11% before a £17m hit from new measures surrounding customer due diligence. The acquisition of Mr Green — completed back in January — should help maintain this momentum going forward.
That said, the key driver of growth for the company going forward will surely be the US sports betting market. Having been “first out of the blocks“, Hill now has a 34% market share (by revenue) across the seven regulated states.
Worth a punt?
I don’t think there’s a stock that I’ve changed my opinion on more times over the years than William Hill. Right now, I’m pretty negative.
Based on an expected 42% drop in earnings over 2019, the shares now trade on a forecast P/E of 16. That’s far too rich for me, despite the aforementioned growth opportunities over the pond. While no doubt attractive, it can’t be forgotten that the business is already operating in a very crowded market and that competition for this new prize will surely only become more intense as the months pass.
The 9% reduction in the dividend from 13.2p per share in 2017 to 12p per share is also another bitter pill to swallow. Granted, it’s not as big a cut as that seen at this FTSE 100 retail stalwart but, with the shares on something of a losing streak (down 40% in the last 12 months alone), Hill’s income credentials were one of the few things keeping me interested.
Personally, I think there are far better stocks in the gaming/gambling sector as things stand. Indeed, so positive am I on one in particular that I’ve actually gone ahead and taken a position. You can read all about it here.
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Paul Summers has no position in any of the shares 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.