Has William Hill turned the corner?

William Hill closed off the Q3 results season with a set of numbers that had analysts purring and its own executives speaking with renewed confidence about the UK giant’s progress. Group revenues were up 4% year-on-year with online up 6% on the back of strong gaming growth of 14% in the period although sports betting revenues were down 1%. But it’s hard to say if the firm has yet turned a corner on its path to recovery.

In a comparison with its listed peers Hills performance doesn’t look outlandishly strong. The much decried Paddy Power Betfair Q3 results showed online revenue down 3% with staking levels up 10% and gaming revenues flat. Ladbrokes Coral results are harder to unpick due to the inclusion of Australian revenues in the digital division, but Coral revenues were up 13% year-on-year with Ladbrokes revenues down 9%.

What’s also worth noting is how comparatively muted Hills results were in the comparative period in 2016, with the operator coming out of a particularly tough period for its online business. While PPB posted 15% revenue growth in Q3 2016, Hills were just 4% ahead in the same period with gaming down 2%. So while Q3 2017 can be seen as a positive it’s arguably not quite time to break out the bunting just yet.

Positive momentum

Listening to the executive team there was a consistent line of positive momentum in the business and an understated confidence in its underlying performance. “If you told me at the start of the year this is where we’d be now I’d have taken it,” William Hill CEO Phillip Bowcock said in an analyst call following the results. And it is clear to see some areas of significant progress at Hills in the period.

The mobile product is now competitive with its peer group and Bowcock talked of the work done on its trading platform to enable more automation and therefore speed of bet offers, which is crucial for driving more in-play growth. And Hills is now competing more strongly in terms of its product offering to the UK recreational market. Along with adding its own user-generated bet options, which now seems to be the price of entry in the UK market, it has launched a personalised enhanced odds product called Bet Boost.

Hills staking growth was also reasonably strong at 13% (14% in the UK) and slightly ahead of PPB (10%) in the period. Against 2016 numbers including the Euro 2016 tournament its margin dropped by 0.8% to 7.6% (6.6% at PPB) and interestingly William Hill said it had increased free bets by 0.8% of turnover in the period as it looks to compete more head-on with the likes of Sky Bet. It’s worth noting it’s likely to continue to see margin squeezed through the next few months as new initiatives like Bet Boost become more widely used.

The big squeeze?

What is much less clear is if Hills is gaining market share or managing to squeeze a bit more from its existing customer base through bringing its product offering back up to the top tier. Bowcock refused to be drawn on this point in the analyst call and we will likely need to wait until the end of year numbers before getting a fuller picture of the underlying trends in the business. But there are indications that it is more of a yield improvement than a big customer acquisition grab.

Bowcock commented several times on the improvement of the cross selling within the business during the period, and said this was a big factor in its gaming growth. “We’re seeing significant benefits on our cross sell and we had our best cross sell week ever last week,” he noted in the call. This is certainly not a negative for the business, but as we’ve seen from PPB an overreliance on cross-sell can only get you so far in a fiercely competitive market.

The question around Hills then remains to what extent is it still playing catch-up and to what extent is it making market share gains? Bowcock points to the significant progress made in terms of its technology and operational processes with comments on more programmatic and targeted marketing in the period and while he wouldn’t speak directly to market share gains said “we are comfortable with where we are”. But is comfortable really where Hills should be right now?

The international view

There is little doubt this is a significantly improved business than in the same period in 2016. From a business some had written off in the face of rising competition from Sky Bet, Ladbrokes Coral and the newly merged powerhouse of PPB it has done well to retain its position on the top table in the UK. But it could, and should, be doing more. The consumer offer is far stronger than it was, but it still has gaps, and internationally it’s harder to see where the future growth comes from than some of its peers.

The strongly performing US business, which benefitted hugely from the Mayweather McGregor bout in the period is a potentially hugely valuable asset. But progress is glacially slow in the US and far from certain and while some grey market growth is likely to enhance revenue growth in the short-term it’s not the long-term solution to share price growth.

“We are still predominately UK based,” Bowcock said, adding that “diversification outside of the UK’ is still a key priority for the business but no further detail was given on how this was going to be achieved. And it was notable no real mention was made of Spain or Italy in the period. Bowcock said he didn’t think a big deal was needed, although the wider market may not agree with him, and there are a number of potentially complimentary businesses of varying scales that could make a big difference to the business not least in terms of revenue profile.

Next steps

As seems to have been the case for the last couple of years with Hills, there is clear progress being made but many questions remain. Can it begin to make significant market share gains on its own or will it look to M&A? Will it look to split off retail and online as some have suggested? Will it look to acquire at scale or make smaller more strategic moves? Or will it just continue to focus on organic growth?

In a period of mixed results it’s right to put a positive spin on things and the big changes its made behind the scenes have prevented what was a disaster a couple of years back turning into a crisis. However, this is not, yet, a business firing on all cylinders and as the operator admits there is work that still needs to be done to get it back to its previous position as a market leader. This was a decent performance, but at some point Hills needs to start turning good into great.