In the world of steeplechasing, sitting on the fence is an uncomfortable position so it is probably appropriate that the Swiss bank has abandoned its neutral position, and switched to an “outperform” rating.
The target price has been cranked up to 380p from 240p; the shares currently trade at 339.4p, up 2.2%.
Following the publication of the Department for Digital, Culture, Media & Sport (DCMS) consultation paper on fixed-odds betting terminals (FOBTs) in October, the oral arguments made before the US Supreme Court (SCOTUS) in December that could pave the way to the liberalisation of sports betting in the US, and the proposed acquisition of Ladbrokes Coral by GVC in December, Credit Suisse reckons there is more likelihood of good news than bad news ahead.
In its review, the DCMS indicated it would cut the maximum stake on FOBTs from its current level of £100 to somewhere between £2 and £50, and is currently in a consulting period that is due to end this month.
In Credit Suisse’s model, it is assuming that the DCMS will plump for the middle ground of a £20 maximum stake.
As for the liberalisation of sports betting in the US, Credit Suisse is going evens on the chance of New Jersey’s SCOTUS case succeeding. William Hill operates 107 of the 200 or so sports books located in casinos and racetracks in Nevada, so it an experienced operator in the one US state with a fully regulated sports betting regime, and is far more geared towards an opening up of the US than the likes of Ladbrokes Coral and Paddy Power Betfair.
“While there is near-term risk to consensus estimates from potential regulatory and tax changes in the UK and Australia, we think this is mostly priced in, and we continue to see William Hill as well positioned in the US and a possible beneficiary from ongoing industry consolidation,” Credit Suisse said.
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Online gambling sites operating in Australia will be banned from offering lines of credit under new reforms to take effect in February 2018. Credit Suisse is also expecting a 15% federal Australian point-of-consumption tax to be introduced at the beginning of 2019, which has resulted in it lowering its 2019 earnings forecast by 5%.
The bookie is a perennial takeover target but Credit Suisse believes there is little merger premium baked into the price, although the stock has moved up 12% since the GVC-Ladbrokes deal was announced.
William Hill will release a trading update on 18 January, covering the period from September.
Credit Suisse is expecting the statement to be short in detail but might give an indication of operating profit versus market expectations.
The Swiss Bank is forecasting operating profit of £267mln for 2017, some £4mln below the consensus forecast.