William Hill might be fancied after referendum

William Hill shares have tanked, during the biggest political betting event in British history.

For the last few months, William Hill has barely been out of the news, mostly for the right reasons.

The bookmaker, just like rivals Ladbrokes and Paddy Power Betfair, has enjoyed reams of free airtime, impressions and column inches, as it calls the odds ahead of the Brexit vote.

Ironically though, during this ‘once-in a-lifetime’ event, the 82-year old group is one of the worst FTSE 350 performers, down 26% this year.

The stock’s poor run can only partly be explained by the sell-off across assets on concerns about the economic impact of a Brexit, particularly on consumption and the pound.

On that basis, William Hill shares would fall further and faster than the market in the event of a Brexit, as that would compound its unfavourable industry position.

The group was Britain’s highest-grossing bookie in 2015 and around 85% of its £1.6bn sales were in sterling.

The chill even reached the capital markets this week, when the group had to make last-minute revisions to a bond deal following poor demand.

Shareholders have also been less than enthusiastic, as the referendum offers another chance to trim losers, in an industry roiled by consolidation, the Internet and regulation.

William Hill hasn’t participated in the latest wave of UK deals, and that’s another reason why the stock has been the clear loser among listed bookies over a year.

At the same time, the creation of another large, well-integrated competitor is still on. The Competition and Markets Authority last week obliged Ladbrokes and Gala Coral to sell 350-400 shops to win merger clearance. They signalled they would.

On the plus side, William Hill shares—40% lower in 2 years—certainly can’t be described as expensive, even in a sector de-rated by the worst Cheltenham Festival in living memory (for bookies).

The group also retains a bigger wad of free cash than rivals, partly due to reasons mentioned above, and its leverage is modest.

That modesty might prove attractive to a buyer, when the referendum dust settles.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.