US Success Points To William Hill Attractiveness As A Potential Target

The degree to which William Hill relies on the US for good news on the trading day was on full display Thursday when the sports betting firm released its trading statement.

While online generally performed OK, with a 4% Pro-forma rise in the 17 weeks to the end of October, and the UK retail performance continued its downward slide caused by the changes to the stakes permitted on gaming machines in UK retail betting, the US sports betting business posted a 60% rise in net revenue.

“In the US our business has gone from strength to strength,” chief executive Ulrik Bengtsson boasted. And indeed over the period, William Hill kickstarted its operations in Iowa and Indiana. That means the company is now taking bets in 10 states, claiming a market share of 26%.

That is sure to increase in the coming months.

William Hill Benefits From Industry Consolidation

William Hill anticipates the closing of the acquisition of Caesars Entertainment by Eldorado Resorts. The deal will result in Caesars’ sportsbooks added to the William Hill network.

“We have excellent market access, a valuable partnership with Eldorado and we are excited about the potential that is presented by the combination with Caesars,” said Bengtsson.

On top of this, William Hill also announced the acquisition of CG Technology. CG Technology is the company behind the sportsbooks at various Las Vegas Strip casinos including the Cosmopolitan, the Venetian and the Palazzo.

The deal, for an undisclosed sum, cements William Hill as the number one operator in Nevada where, according to the trading statement, the business saw a 22% increase in revenue growth. That was achieved on a gross win margin that was slightly improved at 7.5%, up two basis points year-over-year.

William Hill’s US Expansion

In expansion states, revenues tripled, pointing to the sheer scale of the opportunity in the US as even more states go live with sports betting.

Analysts were certainly impressed with the developments in the US.

“The US business has the potential to change gear and really get moving, which is why we are sticking with our Buy rating despite the in-line performance,” said Ivor Jones, analyst in London with Peel Hunt.

The positivity around the performance of the US operation has Jones forecasting the business will be breakeven this year and is likely to generate a “modest” profit in 2020.

“But this financial performance bears no relation to the medium-term potential,” he added. “While the group is unlikely to maintain its current 26% market share, its channel-agnostic strategy gives it plenty of scope for growth.”

Pots of gold

This upbeat prognosis will be boosted even more once the ink is dry on the Eldorado-Caesars deal.

Jones suggests that by adding the Caesars sportsbooks to the mix, William Hill enjoy a boost of between $20-30m of EBITDA, and that this will begin to flow through to the bottom line as a faster pace than the predicted window of “within three years” which has been spoken about by William Hill management.

“During next year, the scale of the US opportunity will become increasingly apparent,” he concluded.

A similarly optimistic tone on the US came from Gavin Kelleher, an analyst with Goodbody Stockbrokers in Dublin. Kelleher pointed to the contrast between the unlit uplands in the US and the slightly bleaker story elsewhere.

“With the US business performing well, this can help offset some of the disappointment around international online,” he pointed out.

That highlights one of the major tasks facing Bengtsson, who is just a few months on the job as CEO, and faces the triple task of stabilizing a moribund UK retail business, turning around an underperforming online business, and all the while managing expectations in the US.

Kelleher says the “mixed picture” from the statement contains enough negatives to potentially affect consensus forecasts for next year’s operating profit.

William Hill Abroad

Having shut-off its business in Switzerland ahead of that market opening, and seeing some disruption to other elements of its European business – notably the Netherlands – international online revenues fell 4% over the 17-week period.

Pointing to the consensus estimate for operating profit growth of 26% in 2020, Kelleher warns that further disruption internationally could mean there is a risk of company forecasts being trimmed.

“A reduction to the 2020 consensus is disappointing. However, we would highlight that the investment case is heavily weighted towards the strategic value of this business – with the US a significant part of this,” he added.

Or, as Richard Stuber at Numis in London put it, “we continue to believe William Hill will ultimately be involved in sector consolidation.” The implication is that further US progress next year would seem almost to guarantee that a buyer will come knocking sooner rather than later.