William Hill 'offers buying opportunity' after Friday's fall
Broker Peel Hunt said it believes there is a "buying opportunity" in William Hill shares after they were sent tumbling by interim results from the bookmaker on Friday, with Barclays also upgrading its recommendation for similar reasons.
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Peel Hunt analysts think the opportunity comes from an "misunderstanding" of the results.
The analysts, Ivor Jones and Douglas Jack, cut their full year forecasts for this year to £207m from £244m to account for start-up losses in the US business but increased those for 2019 to £226m from £207m, as William Hill laid out plans to invest $50-60m in the US.
"Our FY19E forecast assumes that the US business stabilises in order to give us a basis for valuation but in reality, if the business is successful in the US, there will be increased investment and lower profits," the analysts said in the note to clients on Monday morning.
In the half-year results, Hill's said it planned to invest in the US to make the most of the recent overturning of the former federal ban on sport betting. The company's US business reported a $17m operating loss in the half and there were $50-60m of additional costs flagged for the second half.
"Overall the US business (including the existing Nevada/Delaware business) is expected to roughly break even in 2018. The market appears to have taken fright at this apparent downgrade, as well as the the over £800m write off relating to the UK retail business.
But this seems to Jones and Jack to be "the wrong reaction" to "ho-hum interims".
With a lot of bad news in the price and the shares trading for 13 times full year earnings, with a yield of over 5%, "we expect the share price to bounce".
Barclays, meanwhile, upgraded William Hill shares to 'overweight' from 'neutral' with a 320p target price, noting that they have underperformed Ladbrokes owner GVC by 24% since the initial excitement about the US Supreme Court decisision wore off.
This autumn the bookie will outline its US strategy in more detail in a capital markets day, with Barclays analysts also observing that acquisitions outside the UK are possible, while William Hill might also be a takeover target given the “wave of M&A sweeping through the sector”.