William Hill enjoys 'unprecedented' sports results, awaits key regulation

Bookmaker William Hill hailed strong online and US performances as net revenues rose 3% in the first 17 weeks of the year, putting rivals' results rather in the shade.

Retail net revenue was down 4% in the period to 24 April, but online takings were up 12% and US net revenue soared 45%. There was also an impact from 15% of UK and Irish horse races being cancelled due to the weather compared to around 5% in the prior year.

There was an "unprecedented run" of bookmaker-friendly sporting results in football and horseracing in the early part of 2018, said chief executive Philip Bowcock, though the Cheltenham festival only yielded an "average" result against a record win last year, with a similar year-on-year result in the Grand National. The US Superbowl was very positive.

This strong run of results led to gross win margin improving 0.8 percentage points in retail to 18.8%, up 1.3% to 8.8% in online and up 1.5 points to 7.7% in the US. This had a negative impact on amounts wagered on sports events, with retail down 13% and online down 8%.

Hills' share price, along with those of its rivals, have been badly bruised by reports that the government will slash the maximum amount that punters can bet on fixed-odds betting terminals, or FOBTs. Expectations for this trading update were further dampened by a gloomy report from Paddy Power Betfair last week.

But online momentum was encouraging for investors and management, with gaming net revenue up 8%, supported by a strong increase in active customers and improved cross-sell rates, while total online active users were up 10%.

"William Hill has had a positive start to 2018, making further progress against our strategic priorities to grow UK market share, drive international revenues and deliver key transformation projects," Bowcock said, adding that the strong run of sporting results is expected to normalise over time.

The A$313.7m sale of the Australia business strengthened on 23 April has strengthened the balance sheet, he noted, as the group await the outcome of the UK Triennial Review into betting machines.

Bowcock also pointed to the US Supreme Court's decision on sports betting legislation, which could open the door to legalisation of sports betting in a large number of US states.

With the FIFA World Cup in Russia approaching, an effort has been made to improve the sportsbook app, along with cross-selling into gaming.

William Hill shares were little moved at 280.4p in the first couple of hours on Tuesday morning, having fallen 17% since reports emerged that FOBT maximum bets could be cut from £50 to £2.

Broker Canaccord said the increase in online actives was a positive lead indicator and noted "encouraging growth" in its self-service betting terminals, now 14% of total sportsbook wagering, while machine revenues were flat, with a decline in the 'B2' games that are the target of the government's Triennial review.

"Paddy Power Betfair's recent update had dampened expectations, and this was an encouraging update from William Hill, showing a demonstrable turn-around in the online business," analysts wrote. They forecast PBT of £251.6m and EPS of 25.0p for the full year and suggest reports that a £2 maximum stake on all B2 FOBT content could knock circa £95m off group EBITDA when fully mitigated through shop closures - with an initial impact even worse.

"As such, headline valuations on current estimates (which exclude the Triennial hit) are meaningless."

Numis analysts were also cautious while two key regulatory decisions in the UK and US were arguably much more important that current trading. "Both of these decisions are expected within weeks," they noted, adding that potential M&A was another angle of interest to investors.