Davy Research |
|
William Hill plc
(WMH LN)
Reports strong set of numbers despite weather-related headwinds
27 July 2012
David Jennings
| Closing Price: | 290p | Rating: | Outperform | 16/02/11 | Previous: | Neutral | 03/09/10 |
FACTS: William Hill has reported a strong set of H1 numbers that are £2.5m ahead of our numbers and £8.5m (5%) ahead of consensus. Group EBITA in H1 came in at £167.8m versus the Davy forecast of £165.4m; consensus was looking for £159.2m.
ANALYSIS: Within the mix, retail came in below our expectations (but ahead of consensus) while online was well ahead.
Retail: EBIT came in at £109.8m versus the Davy forecast of £115.0m (consensus: £108.4m) – we were at the top end of the range for retail. Costs were in line but revenues were £6m behind.
Over-the-counter net revenue came in at £233.8m (Davy: £237.9m). Amounts staked were down 1% (Davy: +0.7%), while gross win margins were in line at 17.8% (Davy: 17.7%). The decline in amounts staked appears to have been caused by racing fixture cancellations – fixtures were down 9% year-on-year due to weather in February and May. To put this in context, management is saying that the staking impact of these cancelations more than offset the staking benefit of Euro 2012 in Retail. Machine net revenues were up 5% to £183.6m (Davy: £185.7m). As such, total retail net revenue came in at £417.4m (Davy: £423.5m). Operating costs were up 4% as per guidance.
Online: The performance of William Hill Online is well ahead of expectations, driven by higher-than-expected operating margins. While revenues were in line (£198.4m versus Davy £198.3m), H1 EBIT has come in at £68.9m versus the Davy forecast of £61.9m and consensus expectations of £61.2m.
Sportsbook net revenues came in at £80.3m (Davy: £82.2m). Amounts staked were up 33% while overall gross win margin came in at 7.8% (Davy: 7.4%). This is despite the fact that the gross win margin from Euro 2012 was just 2.8%! Gaming revenues came in slightly ahead at £118.1m (Davy: £116.1m), driven primarily by continued strong performance in Casino.
Operating costs, however, were well below expectation. EBIT margin in H1 was 34.7% versus our forecast of 31.2%. This is very encouraging given that this was a high marketing spend period due to Euro 2012. Marketing costs as a percentage of revenues were 28%.
Telephone EBIT came in £1m ahead of our expectations at +£0.7m.
DAVY VIEW: Overall, this is a very good set of numbers, particularly given the challenging economic environment in which they were delivered. Indeed, had it not been for weather-related cancelations, we would have been looking at material upgrades to our numbers for the year. As it is, we are likely to tweak our numbers higher and would expect others to be putting through larger upgrades. The stock has performed very well year-to-date (up 45%) but remains 14% below our price target of 335p. We will review both our forecasts and valuation following this morning's presentation but believe that the 'outperform' thesis remains very much intact.