Credit Suisse reiterates 'outperform' rating on William Hill

The Swiss broker's key takeaways on William Hill's recent trading were that, although operational leverage in its online business was apparent, with the firm's online EBITDA margin up 190bps year-on-year to 27.2%, the investment bank expected the bookie to exploit this fact further to help recover market share losses in the UK.

"We retain an outperform rating on William Hill. We believe the risk-reward is asymmetric with regard to the Supreme Court decision, with little priced in for the US opportunity at present (our TP includes 35pps). While the Triennial Review is a risk and an entirely plausible £2 outcome would hurt share price performance when announced, media reports of accelerated consolidation post the event could provide a floor on where the share price will ultimately settle," Tal Grant and his team of analysts at Credit Suisse said on Tuesday.

The analysts said their 2018E EBIT estimate was broadly unchanged, with that for the retail arm down £20m due to shop closures and worse trends than originally modelled, at the same time as their projection for online EBIT jumped £16m due to a higher base in 2017 and positive momentum, leading Credit Suisse to increase its EBIT estimates by 12% for each year between 2019 and 2020.

"Our TP remains at 380p. Higher estimates increase our DCF valuation (390p; was 370p), but margin compression in the sector lowers our sum-of-the-parts valuation (360p; was 390p). Our TP includes £305m/35p of value from US optionality, which is not included in our financial estimates," the analysts concluded.

As of 1620 GMT, shares had declined 0.63% to 333.60p.