Goldman downgrades William Hill, sees underperformance continuing

Goldman Sachs downgraded bookmaker William Hill to ‘neutral’ from ‘buy’ and cut the price target to 380p from 460p following the company’s most recent trading update, which highlighted slower growth in the online business partly on the back of new regulation.

GS noted the shares are down 3.4% versus the FTSE World Europe down 1.9% since it added the stock to its ‘buy’ list in February 2014.

“We believe its recent underperformance versus the UK online market is likely to continue near term (causing recent share price weakness) given the focus on internal restructuring and fewer customer sign-ups,” it said.

The bank reckoned UK online market share losses would continue for William Hill this year, driven by regulatory headwinds, industry consolidation and increased marketing spend by some key competitors.

“That said, relatively low leverage (2016E net debt/EBITDA 1.9x) and strong cash generation (cash conversion > 100%) should allow for increased online investment and cash returns (25% market cap to 2018E),” the bank added.

In the medium term, GS sees William Hill’s agreement with American gambling technology company NYX Gaming as underpinning its focus on proprietary technology and enabling market share growth online.

At 0805 BST, William Hill shares were down 1.1% to 329.70p.