During this market crash I have looked into William Hill (LSE:WMH) and Flutter Entertainment (LSE:FLTR).
Market crash victim
William Hill is heavily reliant on its retail business, with over 1,500 shops across the UK. In fact, approximately 45% of William Hill’s revenue comes from its retail division. So it is fair to say that Covid-19 and the lockdown has been disastrous for William Hill. If you add to the closure of these shops the fact that sporting events have been cancelled around the world, things aren’t looking good right now in my opinion.
William Hill has seen nearly 50% of its share price value wiped off in 2020 alone. In reaction to the market crash it decided to suspend its dividend and has taken advantage of the UK government’s furlough scheme. Its staff costings come close to £400m per annum. Naturally advertising expenditure will decrease with a lack of sporting events which could save it a bit of money.
William Hill’s share price has doubled since its mid-March market crash low of close to 40p. It is also a global player with market share across Europe and ever increasingly into the US market. The US could be a key market as a Supreme Court ruling in 2018 legalised sports betting. In turn, many states have begun to legalise it individually in their jurisdictions. The online gaming market is still ever present even if sporting events aren’t taking place right now, meaning there is still potential to make money. So, there is short-term pain here but potential longer-term opportunity to thrive if you are not averse to some risk.
Too risky or worth it?
Created by the merger of Betfair and Paddy Power, Flutter Entertainment is a gambling and gaming giant in the UK. With hundreds of retail outlets, Flutter also has a strong online presence through its multiple brands. It is also in the process of a nearly $7bn merger with Canadian gambling company The Stars Group, which will further expand its reach.
Listed on the FTSE 100 index, Flutter Entertainment lost nearly 25% of its share price value due to the market crash. It is worth noting that its share price is currently higher than pre-crash levels. FLTR does possess a high price-to-earnings ratio of close to 50, which suggests it may be overpriced. In response to current market conditions it cancelled its 2020 dividend but is still paying its 2019 final dividend. This amounts to £1.61 per share but is in the form of shares, not cash. FLTR also decided to furlough many of its staff around the world albeit without government help. The decision to furlough indicates to me it is in a strong position to be able to pay wages without government help.
FLTR’s Q1 trading update in early April showed revenue was up 16% year on year to £547m, including a healthy rise in both sports betting and online gaming. Sports betting will be affected for the next quarter due to cancelled events. In my opinion there is a longer term opportunity here. With the merger still going ahead there is some light at the end of the tunnel. However, it must be noted that debt levels will rise after the merger and there is no offer of a dividend either. FLTR is one worth considering if the price reduces in the market crash.