Af­ter a 90pc pa­per loss in March our Wil­liam Hill tip is back in the run­ning. Hold

Things have started to go right for the book­maker and its strong po­si­tion in the grow­ing US mar­ket could of­fer fur­ther gains, writes Russ Mould

The Daily Telegraph - Business - - Business - Russ Mould is in­vest­ment di­rec­tor at AJ Bell, the stock­bro­ker

SELL your losers and run your win­ners is a strat­egy preached by many a suc­cess­ful pro­fes­sional money man­ager, and this col­umn must ad­mit that it can some­times be too for­giv­ing when the share price of one of its se­lec­tions starts to slide.

How­ever, pa­tience can be re­warded, pro­vided that the com­pany’s com­pet­i­tive po­si­tion re­mains strong, its fi­nan­cial re­sources suf­fi­cient to see it through any near-term dif­fi­culty, and the val­u­a­tion low enough to of­fer both pro­tec­tion from falls and the po­ten­tial for gains.

Down at 37p in March, a loss of nearly 90pc on book­maker Wil­liam Hill was star­ing this col­umn in the face. But our de­ci­sion not to sell has paid off, at least so far. Helped by a timely waiver of the covenants on its debt in May, a

pro­gramme de­signed to cut costs and pre­serve cash, and June’s £224m fundrais­ing at 128p a share, Wil­liam Hill’s bor­row­ings look much less oner­ous, es­pe­cially as those covenants will not be tested now un­til next year and the firm has £672m in cash on hand, ac­cord­ing to first-half re­sults re­leased last month.

The re­sump­tion of sport­ing ac­tiv­ity around the globe is a fur­ther pos­i­tive de­vel­op­ment, to give pun­ters a chance to back their opin­ions with their stakes. Trad­ing has been suf­fi­ciently strong in the early stages of the sec­ond half to per­mit Hills to re­turn the £24.5m in fur­lough cash it re­ceived from the Govern­ment, thanks in part to fur­ther ad­vances in on­line rev­enues, an area where the com­pany has tra­di­tion­ally been seen as a bit of a lag­gard rel­a­tive to GVC, Flut­ter and oth­ers.

Best of all, Wil­liam Hill con­tin­ues to make progress in Amer­ica, which re­mains a mar­ket of huge po­ten­tial fol­low­ing the re­peal in 2018 of the Pro­fes­sional & Am­a­teur Sports Pro­tec­tion Act and the le­gal­i­sa­tion of sports wa­ger­ing, al­beit at the dis­cre­tion of in­di­vid­ual state leg­is­la­tures.

Hills was al­ready well-placed in Amer­ica, as it was the lead­ing reg­u­lated player in Ne­vada and had a re­la­tion­ship with New Jer­sey’s Mon­mouth Park race­track be­fore the law changed. It has since built on that po­si­tion via ex­clu­sive part­ner­ships with CBS Sports and the casino group El­do­rado. The lat­ter has since ac­quired Cae­sars En­ter­tain­ment to cre­ate

Amer­ica’s largest casino group and the newly cre­ated en­tity has just struck a deal with the US sports broad­caster ESPN, greatly en­hanc­ing Wil­liam Hill’s reach both on­line and across 170 re­tail sites in 13 dif­fer­ent states.

As a re­sult, Hills con­tin­ues to ce­ment its strong po­si­tion in the bur­geon­ing US mar­ket and is do­ing so with lit­tle ad­di­tional mar­ket­ing spend­ing, as it lever­ages ex­ist­ing re­la­tion­ships and tech­nolo­gies.

The gam­bling in­dus­try will not ap­peal to all in­vestors, not least on eth­i­cal grounds, and key risks re­main, notably any fur­ther can­cel­la­tion of ma­jor sports be­cause of a sec­ond wave, higher taxes and on­go­ing reg­u­la­tory scru­tiny. Even a mi­nor whiff of a bet­ting scan­dal in the US, for ex­am­ple, could set that mar­ket back years, as anti-wa­ger­ing cam­paign­ers would doubt­less press for new laws as they evoked mem­o­ries of the 1919 base­ball World Se­ries, thrown by the Chicago White Sox in ex­change for cash. How­ever, mo­men­tum in the US is build­ing and Hills’ prime spot here could well merit a higher val­u­a­tion over time for the shares. Hold.

Up­date: Key­stone Law

A re­sump­tion of div­i­dend pay­ments at Key­stone Law bodes well and shows how adeptly the “chal­lenger” le­gal firm is adapt­ing to new work­ing con­di­tions as most prin­ci­pals and sup­port staff work re­motely.

More­over, re­cruit­ment re­mains strong, cash flow is ro­bust and the num­ber of new in­struc­tions is al­most back to pre-pan­demic lev­els.

As ever, the only real con­cern re­mains val­u­a­tion. A fore­cast price-toearn­ings ra­tio of 36 for 2021, ac­cord­ing to con­sen­sus an­a­lysts’ fore­casts, means the stock is best suited to risk-tol­er­ant in­vestors who seek growth or mo­men­tum plays.

The pay­ment of two in­terim div­i­dends speaks of con­fi­dence in the fu­ture so stay on the right side of the law. Hold.

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