Credit Suisse upgrades bookies William Hill and Ladbrokes

Credit Suisse upgraded William Hill to ‘outperform’ from ‘neutral’ and lifted the price target to 500p from 420p, saying the cash return story was as attractive as M&A

The bank said it disagrees that William Hill is being left behind by ongoing industry consolidation, and reckons it will continue to be competitive.

In addition, it said the group is now in a position to re-leverage the balance sheet and return cash to shareholders.

CS thinks William Hill could return 39% of its market capitalisation to shareholders over the next three years, with only 2.5x leverage.

It added that William Hill is in a strong position heading into this year, with the wider industry benefiting from the European Championships and weak comparatives.

“Furthermore, while peers are focused on integration, William Hill's management can focus on taking market share. We see the potential for significant cash returns to lead to a re-rating for the stock.”

The bank also upgraded its stance on peer Ladbrokes, to ‘neutral’ from ‘underperform’, raising the price target to 130p from 85p, pointing to upside potential post-merger from a digital recovery and cost synergies.

Credit Suisse said the resultant company from the merger with Coral will have a better earnings mix and the bank forecasts stronger medium-term earnings growth, albeit with a little initial disruption from integration.

CS sees £76m in gross synergies and net synergies of £34m.

“Given the likely disruption from the integration of the businesses and shop divestments, we do not forecast a meaningful improvement in earnings until 2018, but on a medium-term view, are very positive on the combined entity compared to standalone Ladbrokes.”

If, however, a deal does not occur, it sees significant downside potential to the stock.

At 1234 GMT, William Hill shares were up 0.7% to 379.30p while Ladbrokes was up 2.6% to 122.84p.