William Hill feels the bad luck of the draw and takes £20m hit

Punters may be celebrating but William Hill isn't
Punters may be celebrating but William Hill isn't
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Bookmaker William Hill said it will take a £20m profits hit after football results at the start of the season went the way of punters.

The FTSE 100 group, which employs more than 3,000 people in Yorkshire, including 1,300 people in Leeds, also blamed a quiet July for the disappointing third quarter performance, although it said demand picked up in August and September.

With fewer draws in the big football matches, William Hill said the sporting results had not been as favourable as the same time a year earlier.

Analyst Greg Johnson at Shore Capital said: “Following on from Ladbrokes profit warning last week, William Hill has issued an IMS this morning that reflect the impact of a poor start to the football season for the bookies.

“With the number of draws, season to date, down around 40 per cent on last season, operating profits in the quarter are around £20m below expectations. We had expected to hear from William Hill later in the month, perhaps the incoming calls post Ladbrokes has forced the issue.”

William Hill said operating profits for the three months to October 1 were down 31 per cent on last year.

Despite the poor quarter, the bookmaker said there is still time for it to recoup the shortfall should sporting results turn in its favour.

It also said it is encouraged by the staking levels and gaming machine performance in its shops in August and September, with football wagers in its retail estate up 27 per cent in the quarter.

Chief executive Ralph Topping said: “It is, of course, important in our business to look through the impact of short-term results on trading.”

The warning comes a week after rival Ladbrokes said profits from digital operations will be more than £10m short of hopes in the current financial year.

“Given the success of William Hill’s online business, the fact that football generally represents a higher percentage of bets placed online/mobile and that gross win margins have to date been higher online and in mobile, it is relatively easy to understand why profits have been hit,” said Mr Johnson.

“It should be borne in mind that the vast majority of the recent Ladbrokes downgrade was Ladbrokes related rather than sports results. William Hill have also pointed to quiet July trading in retail, which we would expect is weather related.

“This was also seen at Ladbrokes, although they flagged it some time ago, William Hill on the other hand were somewhat dismissive at their half year results that they had seen much of an impact.

“While the downgrade is unhelpful, history tells us that investors should not sell a bookmaker on the back of poor sports results.”

He added that with online and mobile continuing to grow strongly, he remains confident in the long term attractions of the William Hill investment case and reiterated his ‘buy’ recommendation on the stock.

Analyst Simon French, at Panmure Gordon, said: “William Hill has announced its third quarter IMS for the trading period to the end of September, with trading in the quarter impacted by poor sports results resulting in a lower gross win margin, whilst retail was also impacted by the hot weather seen in the UK in July.

“These two factors combined have resulted in operating profit being £20m (or 6.6 per cent of our 2013 pre-tax profits estimate) below management’s internal expectations and they indicate that there can be no certainty of recovery in the fourth quarter 2013.

“Therefore we reduce our 2013 pre-tax profit forecasts by £20m to £279m.

“We leave our 2014 forecasts unchanged.”

In August, William Hill bought Australian online betting firm Tom Waterhouse for an initial £20m.

The bookmaker has expanded aggressively through acquisitions in recent months, spending almost £900m to take full control of its online operations and buy rival gambling company Sportingbet, giving it access to Australia.

William Hill, the world’s largest betting agency by market value, agreed to pay £20m up front and assume £3.5m in debt for tomwaterhouse.com, in a country that has the world’s biggest gambling habit per capita.

It will pay up to £40m more on a sliding scale based on tomwaterhouse.com achieving earnings growth between £6m and £17m in 2015.

Tomwaterhouse.com was established in 2010 and is one of Australia’s fastest growing online racing and sports betting businesses.

It is a privately held company owned by managing director Tom Waterhouse and others.

William Hill said tomwaterhouse.com is not currently profitable but the group expects to achieve “substantial synergies”.