William Hill issue profit warning
Further to my recent post, William Hill have issued a profit warning this morning. Other gambling related stocks have fallen in response.
You can read the full warning here: –
https://www.investegate.co.uk/william-hill-plc/wmh/trading-update/201603230700099669S
In a nutshell: –
- Time-outs and self exclusions are up
- Gross win margin is down due to European football results and also the worst Cheltenham results in recent history.
The numbers & valuation
Profits for the year are forecast to fall by up to £30m. However they would still be around £260-280m. It’s interesting if you look at this number, why? William Hill will generate say, £250m. Their market valuation is £3.3bn.
PP/Betfair is valued at £7bn so if you marked both up at the same multiple you would think Betfair would have earnings of £500m. 2015 estimates are at £116m rising to £167 in 2016. Betfair currently has an very high valuation, so high you probably need oxygen.
How competitive advantage is gained and lost
This is the curious way the market works. People pay very high multiples for growth and heavily discount lack of it. Investors buying in at this level are probably discounting world domination. As I pointed out in my previous post William Hill have elements of key strategy wrong, but have the earnings to do something about it.
However PPB have a large cash pile that keeps growing and no debt, something other competitors do not have.
I once stood in a board room talking to directors of a crusty old monolith of industry who were meandering about and not making any decisions (read – not taking risk). They were worried if they started a new business (Perhaps a betting exchange in modern times) it may disrupt and canabalise there existing customer base.
I told them not to worry about canabalising their customer base, as if they didn’t a competitor would easily do the job for them. They still did nothing.
That company no longer exists, there is a moral in there somewhere!
Category: Industry news
