William Hill - less likely to be a faller than Ladbrokes

William Hill: Yesterday I looked at Ladbrokes, coming to the conclusion that the dividend was at risk of being cut. Today we have the first quarter update from its long-standing peer, William Hill. They too have been on the end of poor results, with a slow January seeing their largest ever loss-making week at £14m. Overall revenue was up 1%, within which on-line and US were up 10% odd, whilst Australia (newly launched after the Sportingbet acquisition) was down 11% and the Retail division was down 2%. At the operating profit line, the Retail division and US were almost flat, with online and Australia down almost 40%. Overall the operating profit was down 19% or £16m, having been hit by £20m as the Point of Consumption Tax rolled out and latterly, the increase in Machine Gaming Duty from 20% to 25%, as well as that horror week in January. On the High Street the pressures being experienced across the industry saw 108 shops closed last year, to leave 2361 open in this period.

William Hill is facing the same challenges as Ladbrokes, but has a better hand of cards to play. The US and Australian businesses give some relief from the battering the industry is receiving in the UK, whilst the online operations are benefiting from the head start afforded by their now ceased arrangement with Playtech. For this calendar year profits are expected to fall with eps consensus around 25p (against 29.9p in 2014), before starting to pick up in 2016. Last year’s dividend was increased by 5.2% to 12.2p (more than twice covered), so a more modest 3.3% increase this year to 12.6p would still be almost twice covered. At today’s 356p these produce a prospective PE of 14.2x and yield of 3.5%. On the face of it these leave William Hill looking a bit more expensive than Ladbrokes and on barely half the yield. The big difference is that William Hill is in good health whilst wrestling with industry changes and political hostility, whilst Ladbrokes is ‘taking an eight count’. For that reason William Hill is a less risky way to back UK betting, if you feel the urge, than Ladbrokes. (Neil Cumming^, 23^rd April 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower