FTSE 100 on course for new record but William Hill warns on profits

Discussion in 'Market News' started by Lily, Jan 9, 2017.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Bookmaker said it was hit by unfavourable football and racing results in December

    Leading shares are on course for an eighth successive closing high, equalling the record set in 1997.

    The FTSE 100 is currently up 17.83 points at 7227.88, as the slump in sterling following Theresa May’s latest hints at a hard Brexit boosted overseas earnings. Mining shares are among the gainers, with Glencore up 7.05p at 295.50p and Anglo American adding 24.5p at 1159.5p.

    Today’s announcement confirms that more shares have been sold to the institutions through the trading plan and the taxpayer is no longer the largest shareholder in Lloyds. The taxpayer stake has now fallen below 6%.

    Retail investors had the disappointment of being denied involvement in a Lloyds share sale, although there is still time and plenty of opportunity to rectify this with the remaining [near] £2bn stake.

    We like Babcock’s unique market position and high barriers to entry but downgrade to Hold as we do not see enough upside at this time. The stock is not expensive, leaving room for some price recovery on e.g. contract news, but in our view investors will need to see repeated strong reporting for a material and sustainable re-rating. While cash generation has been good, certain drags mean the valuation on cash metrics looks less attractive than on earnings multiples. Organic growth should improve next year, however we remain cautious on UK outsourcing as a whole and are not prepared to assume a return to previously seen growth levels.

    Whilst a profit warning on the back of a gross margin miss should not be overstated, this is the 3rd warning in 12 months and focuses us once again on William Hill’s near term shortcomings, including UK retail exposure, losing market share online and the lack of a permanent CEO.

    We can forgive a run of poor sporting results. An unbroken run of Chelsea wins in the period covered by today’s announcement, for example, won’t have been enjoyable for any of the bookies and is clearly beyond William Hill’s control.

    The bigger problem is that while performance in the online division is improving, it’s doing so at a snail’s pace. With the distracting merger talks of last year now behind it, the group seems to be knuckling down to the job of sorting out the core business. Hopefully, the renewed focus and improving trends will start to deliver some results.

    We remain cautious on EM-exposed names, given rising US yields and deteriorating EM sentiment after the US elections.

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