Questor: have a flutter on William Hill – its terrific position in the US could attract a bidder

Russ Mould 19 June 2018 • 7:18am

Exterior of a William Hill bookmakers — The Government’s recent attack on betting terminals is  half-cocked and a lot of bad news is priced into William Hill shares, says Questor Credit: Newscast/UIG via Getty Images

The Government’s decision to clamp down on fixed-odds betting terminals (FOBTs) and cap punters’ stakes at £2 continues to weigh on shares in bookmaker William Hill, which relies on income from high street shops more than some of its more online-savvy rivals, such as PaddyPower Betfair or GVC, the new owner of LadbrokesCoral.

Yet the picture may not be as black as it seems. The Government may not implement the FOBTs cap until 2020 – and it has gormlessly neglected to apply the same cap to online apps and gambling services.

In addition, Hill’s boss, Philip Bowcock, has extricated the firm from its disappointing plunge into the Australian market and prioritised further improvements in its online offering via the appointment of Ulrik Bengtsson as chief digital officer.

Better still, it has a terrific foothold in the US, helped by a trio of acquisitions in 2011. The US Supreme Court’s decision to legalise sports betting could just put William Hill in pole position, since the firm is already the leading regulated player in Nevada and has a relationship with New Jersey’s Monmouth Park racetrack.

Such a strong US position could eventually draw the attentions of a buyer, especially now there is some clarity on the UK regulatory situation. Since the death of its eponymous founder in 1971 William Hill has had six different owners and had to fend off two bids as recently as 2016.

A lowly valuation discounts a lot of bad news and the decent yield flags the cash flow potential of the business, so patient contrarians might like to have a flutter.

Questor says: buy

Ticker: WMH

Share price at close: 312.6p

Update: Biffa

This column is generally wary of firms that emerge from private equity and of serial acquirers but it is glad to have cast aside such prejudices in the case of waste management group Biffa.

The shares are up by around a third since we tipped them in February 2017 and a reassuring set of full-year results, smooth chief executive succession plan and lowly valuation all suggest there could be more to come.

Boosted by acquisitions, sales rose by 9pc and underlying operating profits by 10pc, while the board sanctioned a healthy increase in the dividend to 6.7p, encouraged by robust free cash flow.

This looks particularly solid given persistent difficulties with restrictions on the export of paper recyclables to China, which are shutting off a lucrative revenue stream for longer than expected. Earnings growth in the year to March 2019 could be modest as a result, although March’s share price fall and the lowly valuation should already take this into account.

Seven completed acquisitions appear to be bedding down well, with more in the pipeline, while Biffa continues to assess opportunities in the “energy from waste” arena with partner Covanta. Shortages of capacity in this area, plus long-term environmental and economic pressure to recycle, suggest that Biffa is well placed for future growth.

A lowly forward p/e ratio of just 12.5 factors in a lot of the downside risk but perhaps not all of the upside potential.

Questor says: hold

Ticker: BIFF

Share price at close: 249p

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Update: GB Group

An impressive set of full-year results from identity data intelligence expert GB Group only serves to boost this column’s faith in the firm.

Sales rose by 37pc (17pc of which was organic) and pre-tax income by 33pc as the company provided vital fraud-fighting services to more than 17,000 clients across 79 countries.

The only question at the moment regarding the company, which has net cash, is the valuation attributed to its shares, which have more than doubled since our first look in autumn 2016.

The market value of some £840m is 6.3 times sales and 38 times earnings, based on consensus forecasts for the year to March 2019. The valuation will deter value hunters but there is more than enough here to keep growth and momentum fans interested.

Questor says: hold

Ticker: GBG

Share price at close: 559p