William Hill Plc (£WMH) - A Valuation on 19th November 2020
A veteran UK bookmaker having a punt on reigniting growth. Will this pivot revive growth and stem margin pressures, or will Caesars Entertainment have overpaid?
The Company - William Hill Plc (£WMH)
William Hill Plc. (£WMH) is a retail and online bookmaker. It is listed and run in the UK and has growing US and European divisions. The company generates about ½ of its revenue online and ½ from its high-street shops.
Growth has slowed over the last 10 years and is now virtually non-existent. Margins have been in constant decline as competitive positions and information asymmetry has been worn away by the rise of online betting - this trend is industry-wide. The company’s significant retail footprint, and as such operating lease commitments, has acted as an additional drag on profitability in recent years.
The combination of these fixed commitments, lack of growth, margin pressure and a mounting debt burden has rendered the firm’s credit-rated Ba1/BB with a ~16% chance of serious financial distress. Although its debt-to-capital ratio is only ~35%, this is much higher - to the tune of about £1.19bn - than their optimal capital structure of having no…