William Hill rallies as Rank, 888 abandon bid; bookie upbeat on FY operating profit

William Hill rallied after Rank and 888 Holdings abandoned their bid for the bookmaker late on Thursday.

Investors were encouraged by a statement from William Hill, which said it now expects operating profit for 2016 to be at the top end of the previously guided range of £260m to £280m.

The group said the revision to the operating profit guidance follows a process to validate the full-year expectations over the last three weeks and includes a better than expected EURO 2016 outturn and stronger growth in Retail's gaming machine net revenue.

Chairman Gareth Hill said late on Thursday: “We note the consortium's confirmation that it no longer intends to make an offer for William Hill. We will continue to focus our efforts on our strategy to deliver value for shareholders. The team has a clear plan to grow by diversifying digitally and internationally and four priorities to get us there.”

Rank and 888 put out a statement saying they were abandoning their bid as it had not been possible to meaningfully engage with William Hill’s board.

888’s chief executive officer Itai Frieberger said: “We are disappointed that the board of William Hill did not share our vision of the combined businesses. We believe that there was compelling industrial logic for the combination of these highly complementary businesses, which in our view would have brought scale, diversification, and strong revenue and cost synergies, from which all shareholders would have benefitted.”

Deutsche Bank pointed out that for William Hill to have rejected an offer around 40% higher than the current share price in the first place, it must be comfortable with the underlying progress of the company.

The bank said it sees several areas of downside protection and attractive upside potential.

It said William Hill has strong valuation support with a dividend yield of around 4% and free cash flow yield of approximately 8%.

In addition, it highlighted the company’s encouraging profit guidance on Thursday and said numbers should be further underpinned by newly identified cost synergies.

Liberum lifted its target price on William Hill just a touch to 323p from 319p following the company’s updated profit guidance.

The brokerage, which had expected the 888/Rank bid to fail, said: “The gaming industry is demonstrating through a whole series of M&A transactions that smashing these businesses together can create major synergy benefits and generate value for shareholders.

“In light of this, the status quo at Hills is certainly under threat and in the short term, there could be a value opportunity given the depressed share price.”

Liberum edged up its forecasts for full-year 2016 earnings before interest and tax to £276m from £261m. It rates Will Hill at 'hold'.

At 1130 BST, William Hill shares were up 4.2% to 315.80p.