QuickView: William Hill

The £424m proposed acquisition of the William Hill Online (WHO) minority comes hard on the heels of the £460m acquisition of Sportingbet’s Australian and Spanish businesses, due to complete on March 19 . Together, they significantly augment the medium-term prospects for William Hill’s online business, mainly internationally. The price agreed with Playtech for the 29% minority was well in line with analyst expectations, and the associated rights issue (£375m net, fully underwritten) was slightly higher than expected, giving plenty of firepower for further bolt-on deals. The news was accompanied by an excellent set of results and consensus estimates are likely to increase; the 2013 P/E of c 14.4x looks very reasonable.

Good final results slightly overshadowed...
Results were as flagged in the 29 January update, with revenue up 12% (online +27%, retail +6%), helped by above-average sports margins and strong growth in online sports actives and mobile. PBT rose by 22% and the dividend by 17%.

... by Playtech and Sportingbet deals
The external valuation of Playtech’s 29% stake in WHO began in November; the exercise of the call option and a rights issue was expected but the timing and final agreed price pleased the stock market, as did the appetite for the rights. The deal should complete in April. The acquisition of the Sportingbet businesses gives William Hill a leading position in the regulated Australian corporate bookmaker market.

To give an even stronger online business going forward
William Hill has both scale and technology advantages; retail is performing solidly and online sales could account for half 2014 profits. Net debt at December 2012 was £339m (gearing 33%), and the pro forma £848m post the two deals still does not stretch the balance sheet (net debt/EBITDA remains sub 2.5x). The WHO deal is EPS enhancing and we expect consensus EPS estimates to increase slightly.

Valuation: Very reasonable on a medium-term view
The 2013 P/E, at 14.4x (before any upgrades) is below Paddy Power (22.8x), now a closer comparator (70% regulated online) than Ladbrokes (on 13.5x). International markets present a real medium-term opportunity for growth.

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