After briefly rising at the market open with a mixed trading update, investors have quickly turned cautious on William Hill (WMH) which falls 2.4% to 363.8p. A good end to 2013 has been dampened by a poor start to the new year, adding to existing market fears over potential regulatory changes to the gambling sector which we discuss in detail in this week's new issue of Shares.

 

The £3.2 billion cap reports a 38% increase in sportsbook wagers during the fourth quarter versus the same period a year earlier. This table illustrates the gains across the business during the three-month period.

 

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The Australian businesses – Sportingbet and tomwaterhouse.com – suffered unfavourable sports results with 42% of favourites winning the group races in the Spring Carnival compared with 18% in 2012. But there was a good turn from its US operations, ending its first full year of ownership. Amounts wagered increased by 35% and net revenue by more than 150%.

 

The new year has seen unfavourable football results with an unusually high number of odds-on favourites winning. 'Driven by the impact of this on our otherwise very attractive accumulator business, we recorded a circa £13m loss in the week,' says William Hill. 'There is no certainty that we can recoup this shortfall to internal expectations but based on previous experience of such customer-friendly outcomes, such as 'Dettori Day' in 1996, we anticipate a positive benefit from increased customer confidence, particularly with so much of the season ahead and with the 2014 World Cup to come.'

 

WMH - Comparison Line Chart (Rebased to first)

 

Investec analyst James Hollins increased his earnings per share forecasts for 2013 by 3% but says it is too early to adjust 2014 expectations purely on the basis of one week's trading. The analysts does raise his 2014 EPS forecast by 1%, nonetheless, reflecting a mix of the positive end to 2013 providing a bullish stance for the new year – and this being dampened by the reduction of future earnings from part-owned betting media service provider SIS which has lost a key broadcasting contract.

 

Stockbroker Davy reckons football results so far in 2014 could force consensus forecasts to come back by 4%. 'Sports results aside, the issue for the market is likely to remain the prospect for adverse regulatory change in relation to gaming machines,' it comments. 'While nobody knows what the eventual outcome will be in relation to machines, we fear that concerns over the issue may act as an anchor to the William Hill share price for the foreseeable future.'


Issue Date: 17 Jan 2014