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Here’s why I’m bullish on this slumping FTSE 250 stock in August

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The sky seemed to be the limit for bookmakers after the US Supreme Court struck down a federal ban on sports betting in 2018. William Hill (LSE: WMH) stock challenged a three-year high in the days after the news broke. Unfortunately, it has been downhill for the share price from there. I’m still very high on William Hill because of the upside of the huge, largely unexploited US sports betting market.

Shares of William Hill have plunged 48% year-on-year as of close on July 25. The lack of momentum in 2019 can be partially attributed to the UK government crackdown on Fixed Odds Betting Terminals. The May-led government slashed the maximum stake on terminals to £2, down from the original maximum of £100. William Hill took a revenue hit and soon after announced the closure of 700 betting shops across the country.

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Betting on the US

The company has committed to a huge push into the US sports betting market. Its setback in the UK market will ramp up the pressure on William Hill to expand and deepen its US operations. The good news is its early efforts have netted positive results.

Thus far, William Hill is the only British bookmaker to have secured licences in every US state that has legalised sports betting. In its May update, the company reported that US total net revenues had climbed 48% year-on-year in the seven US states that had regulated sports betting. The company already boasted a strong portfolio in Nevada, the only US state to have had legal and regulated sports betting before the Supreme Court decision. Its Nevada sports book is responsible for 32% of the market share of bookmakers in the state. To top it off, it has forged a strategic partnership with Eldorado Resorts that gives the bookmaker access to 23m customers in 13 states.

New Jersey legalised sports betting at casinos and racetracks in June 2018 and the Garden State has come on strong over the last year. In May, New Jersey took in $318.9m worth of bets, in comparison to Nevada which took in $317.4m, according to gambling regulators from both states.

William Hill has set a medium-term target to achieve 15% market share on average throughout the regulated US sports betting market. In 2018 William Hill launched its digital sports book in New Jersey and had managed to capture 8% market share at year-end. It is now a little more than a month out from the beginning of the National Football League regular season in the US (the sport attracting the most bets in the country) and the company is well positioned to build on its growth in the second half of 2019.

But not everything is rosy. Its big American adventure is a costly one. Investors should expect this to be reflected in its earnings as it looks like William Hill will struggle to turn a profit in 2019. But even if it barely breaks even, this would be a marked improvement from a steep £722m loss in 2018.

Last year the stock paid out a total annual dividend of 12p per share, which represents a 7.5% yield. I like the stock ahead of its half-year earnings that are set for release on August 9. Its push into the lucrative US market has the potential to pay off nicely in the long term, I believe.

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Ambrose 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.

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