The London and European markets ended higher on Friday (on 15th May 2020) as market sentiments were encouraging after monthly growth in China’s factory data in April. However, markets were volatile globally due to rising trade tensions between the US and China amid the COVID-19 mayhem. During the pandemic, major economies have introduced fiscal stimulus, and central banks have gone for interest rate cuts to bolster the economy.
Consider the market conditions, we are going to discuss two FTSE listed stocks from diverse industry – Travel and Leisure stock, William Hill PLC (LON: WMH) and Technology stock, Computacenter PLC (LON: CCC) as both the companies released their trading statements. Following the business updates, the price of both WMH and CCC surged by 8.06 per cent and 12.72 per cent, respectively (at the close of the trading session on 15th May 2020). Let’s have a quick look in the latest fundamentals of these two Group’s, and understand their respective financial position, business capabilities, and outlook to gauge the magnitude of their recent trading updates.
William Hill PLC (LON: WMH) – Battling COVID-19 Uncertainties with Covenant Waiver and Cash Preservatives.
William Hill PLC is a FTSE 250-listed gaming and betting company. It was founded in the year 1934 in the UK. Most of its revenue is still generated from the UK. The company’s European Online business is domiciled in Gibraltar and Malta with the license in 10 countries (post acquiring Mr Green & Co AB in 2019). The company splits its business into three segments – William Hill US, Retail and Online. It employs over 12,000 people globally. Its different brands include, Sports, Casino, Bingo, Poker, Vegas and Games.
The company’s businesses can broadly be divided into three segments- Online, William Hill US and Retail. Out of the three, the Retail business is the oldest one, and the company has been a prominent name, taking bet since 1966. By the end of last year, the company was having 1568 LBOs (licensed betting offices). In retail, the company has been focusing on product range - particularly in football - and technology innovations.
The online business of the company has been in existence since 1998, and in last over two decades, the company has become one of the leading online gaming and betting providers in the United Kingdom. Last year the company acquired Mr Green, which has enhanced its pan-European footprint. UK continues to remain the company’s largest online market and an area of key focus, with an estimated market value of £5.3billion.
William Hill US was created by the merger of three small sportsbook operators. Since PASPA (Professional and Amateur Sports Protection Act) was overturned, the company has been investing in people, technology and partnerships and has become one of the first companies to exploit this opportunity, securing access to 24 states.
(Source: Annual Report, Company Website)
Significant Updates of 2020
- 15th May 2020: Matt Ashley will hold the position of Chief Financial Officer as Ruth Prior has stepped down from his position, with immediate effect.
- 2nd April 2020: The Board of WHM announced that Stephen Parry would be appointed as a Chief Operating Officer (COO) from later this year.
- 16th March 2020: As there is rescheduling or cancellation of sporting events while US casinos are closed, due to COVID-19 disruption. The group is expecting a decline in EBITDA by £100 million to £110 million, with an additional month of closure impacts EBITDA by £25 million to £30 million. Also, dividend suspension has been declared until further notice.
Trading Statement (for the unaudited 17 weeks to 28 April 2020) – Reflecting a Covenant Waiver
As on 15th May 2020, the WMH group announced the trading update, discussing the impact of COVID-19 and following were the highlights of the statement:
- During the above stated period, the decent performance was witnessed in the international markets, primarily driven by the growth in the gaming segment.
- Covid-19 imposed restrictions led to the cancellation of live sports and events while social distancing requirements resultant into the closure of US and UK retail centres.
- Revolving credit facility (RCF) covenants have been scheduled for 2021 from 2020, reflecting a cash saving of around GBP 15 million each month and creating GBP 700 million of liquidity in access.
- Prior to the impact of COVID-19 disruption (period to March 2020), online total net revenue grew by 16 per cent against the same period the previous year, primarily driven by 35 per cent (versus same period last year) increase in international operations. Moreover, the US business has shown 30 per cent growth in the total net revenue while Retail (Like-for-like) revenue plunged 3 per cent.
- Post COVID-19 impact (period 11 March to 28 April), total net revenue for the Group plunged 57 per cent due to lockdown restrictions while Online international operations remained resilient and registered 5 per cent growth.
(Source: Company Website)
Share Price Performance
1-Year Chart as of 15th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)
WMH’s shares closed at GBX 115.35 on 15th May 2020. Stock's 52 weeks High is GBX 206.80 and Low is GBX 28.63. Total outstanding M-Cap (market capitalization) stood at approximately GBP 1.01 billion.
The Group has reacted instantly to the cancellation of sports activities and closure of retail estates by saving cost, reducing cash outflow, cancelling pay raise, and suspending dividends. Moreover, the company has been able to waive the covenants and create addition headroom in the balance sheet for liquidity. The company would be able to invest this saving for growth prospects, notably in the US operations. During the disruption, the online business is likely to perform resiliently while the product developments in the US are set to generate deliver a decent performance.
Computacenter PLC (LON: CCC) – Performed Resiliently During the First Four Months of 2020
Computacenter PLC is a FTSE 250 listed company which provides information technology infrastructure services. The group operates Group Service Desks and Infrastructure Operations Centers across the Americas, Europe, South Africa and Asia. It provides support in 30 languages and serves globally through an extensive partner network.
On 9th September 2020, the Company will provide its next trading update.
(Source: Annual Report, Company Website)
Significant Updates of 2020
- 6th April 2020: Mike Norris (Chief Executive Officer) and Tony Conophy (Group Finance Director) decided to reduce the base salary to zero (1 April 2020 until 30 June 2020) in light of the COVID-19 crisis.
- 24th March 2020: The group entered an exclusive negotiation with BT for acquiring its domestic operations in France. The transaction is subject to consultation approval and regulatory approval thereafter.
Trading Statement (as on 15th May 2020) – Better Performance than Anticipated Previously
The Group released the trading update for four months to 30 April 2020 and highlight of the statement were:
- The group operations have accelerated further during the above state period than previously anticipated (23rd March 2020), and they have managed to secure significant technology contracts despite the COVID-19 disruption. Subsequently, the progressive volume shall yield better performance in H1 FY2020 than even H1 FY2019.
- However, the group was unable to provide meaningful guidance for the second half of 2020 due to continuous uncertainty.
First-Quarter 2020 Update (ended 31st March 2020)
As on 23rd April, the CCC group announced the unaudited financial statements for Q1 FY2020. The key highlights were as follows:
- Revenue for Q1 FY2020 declined slightly as compared to the corresponding period last year, albeit the profitability remained in line.
- The group had been exploring ways to preserve cash and manage cost prudently during the prevailing uncertain market conditions. Therefore, the Board decided that its rational not to propose a final dividend for the financial year 2019.
Share Price Performance
1 Year Chart as of 15 May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)
CCC’s shares closed at GBX 1,506.00 on 15th May 2020. Stock's 52 weeks High is GBX 1,950.00 and Low is GBX 900.00. Total outstanding M-Cap (market capitalization) stood at approximately GBP 1.72 billion.
Outlook – First-Half 2020 in line with Expectations, albeit Second half is Uncertain
During the financial year 2019, the company showed growth in both top-line and the bottom-line performance of the income statement. Moreover, the industry momentum is favorable enough to generate growth for the company since businesses are looking forward to digitalizing the business amid the disruption presented by the COVID-19. In the near-term, the group is expecting pre-tax profit performance (in the H1 FY2020) to be in line with expectation. However, the group is unable to quantify the impact of coronavirus outbreak and unable to provide guidance for the second half of 2020.