FTSE 250 betting and gaming company William Hill (LSE: WMH) delivered full-year results this morning. And chief executive Ulrik Bengtsson said in the report the firm’s operating performance came in ahead of the directors’ expectations.
Around 75% of the company’s business is in the UK, with revenue during the year roughly equally split between online and retail. But the big story is the company’s ambitions to expand abroad. And results from the US are pleasing. Today’s figures reveal to us that just over 7% of revenue came from across the pond, but US revenues surged by more than 30% compared to last year.
A year of transition
Bengtsson reckons 2019 was “a year of transition” because of the acquisition of Mr Green (MRG) and the “strong” growth of the US business. The acquisition of MRG completed in January 2019. The firm is a “fast-growing, innovative” iGaming enterprise with operations in 13 markets such as Denmark, Italy, Latvia, Malta, the UK, Ireland and Sweden.
The directors expect MRG to strengthen William Hill’s online business and help the firm to expand its European coverage. And I reckon we could be seeing the emergence of renewed growth within the business driven by the strengthening of the online offering. I’m encouraged by the company’s progress with international expansion. After all, around 25% of the firm’s business is derived from abroad now.
Bengtsson explained that the regulatory environment had been challenging during the year, but he’s optimistic about the future. The industry is evolving, he reckons, and that situation “brings great opportunities.”
Rebasing the business
And that’s good to hear because the figures in today’s report are dire. Revenue slipped back by 2% compared to the prior year, adjusted earnings per share plunged by 48% and the directors’ slashed the dividend by 33%. It seems that regulatory changes have been taking their toll. Profits suffered badly, for example, because of “the implementation of the £2 stake limit.”
William Hill had a “decisive” response to the new £2 stake limit by closing 713 shops. That led to an exceptional charge and adjustments of just over £134m, mainly because of redundancies and the closure of those shops. Indeed, the company posted a statutory loss before tax of almost £38m. And sadly, net debt rose to £536m, which compares to net cash from operating activities in the period of £183m – to me, that debt pile is uncomfortable.
However, the share price is around 50% lower than it was two years ago, so the market has already adjusted for the new financial reality. And now that William Hill has rebased its business, I reckon there’s a decent chance that operations could grow from here as the firm pursues its international and online expansion strategy.
With the share price close to 174p, the forward-looking earnings multiple for 2020 sits at 14 and the anticipated yield from the rebased dividend is a tempting 4.6%. I reckon the firm could make a decent recovery play if it can keep on top of its debt load and start reducing borrowings going forward.