William Hill profit warning dulls US market expansion optimism


william-hill-profit-warning-us-betting-expansionUK bookmaker William Hill saw its shares tumble on Tuesday after a trading update that warned of lower full-year profits.

Hills’ unaudited report for the 17 weeks to October 23 show group revenue falling 4%, with declines at both the online (-5%) and retail (-4%) levels. The William Hill US operations reported revenue up 6% thanks to the launch of legal sports betting outside Nevada immediately prior to the reporting period.

The figures were slightly more bullish on the year-to-date front, with group revenue flat, thanks to online (+4%) and retail (-4%) essentially cancelling each other out, while the still relatively minor US operations shot up 29% in the 43 weeks ending October 23.

Hills blamed much of its betting woes on a string of customer-friendly results pushing down margins, but year-to-date betting handle was down 3% online and a worrisome 8% at the retail level, despite the expected boost from this summer’s 2018 FIFA World Cup. Online betting handle was up 2% in the H2-to-date column, while retail wagers were down 4%.

Understandably, Hills was eager to talk up its US operations, which now encompass five states (Nevada, Delaware, New Jersey, Mississippi and West Virginia). These operations have handled roughly $200m in wagers so far, which the company claimed was in line with its expectations.

Hills revised its full-year profit forecast to a range of £225m-245m, a significant reduction on 2017’s £291m. However, Hills CEO Philip Bowcock boldly predicted the company’s profits would at least double between 2018 and 2023, largely on the strength of geographic diversification.

Hills is betting big on the US betting market continuing its spread to other states, allocating up to £130m in 2019 for US expansion. This outlay won’t result in immediate profits, however, as Hills expects to book a net loss of up to £20m on its US operations next year.

Last month, Hills announced a £242m bid for online gambling operator MRG, whose operations are almost entirely focused on the European continent. The acquisition will also provide Hills with a strong digital hub in Malta from which to serve current and future European customers.

Diversification is needed due to the increasingly restrictive regulatory climate in Hills’ home UK market, which will see online casino taxes rise from 15% to 21% in October 2019. Combined with regulatory demands for stronger consumer protections and know-your-customer protocols, Hills expects digital profits to be £20m lower in 2018 and an additional £25m hit in 2019.

October 2019 will also see the maximum stakes on the fixed-odds betting terminals (FOBT) in Hills’ betting shops cut from £100 to £2. Hills says the cuts will likely lead to the closure of roughly 900 of its shops, although it’s in talks with its landlords about cutting the company some slack on rent.

All told, the profit warning obscured the US market optimism in the minds of investors, who pushed the company’s share price down 8% before the stock staged a minor rally, closing out Tuesday’s trading down 5.5%.