Analysis: Can Hills achieve ambitious international growth target?
CEO Ralph Topping said operator would derive 35-40% of revenues from international markets by the end of 2017
William Hill CEO Ralph Topping has never lacked ambition and despite plans to step down from his role next year he was in particularly bullish mood last week when he set a lofty target for international expansion.
According to the Scot, Hills will derive some 35-40% of revenues from international markets by the end of 2017.
And given that figure currently sits at just 15%, his statement appeared ambitious to say the least.
Topping admitted such rapid growth would be impossible organically, however analysts have questioned whether even an aggressive acquisition drive would see his prediction come true.
Despite spending big to amass significant market share in Australia, and making decent in-roads into the Spanish and Italian markets, Hills remains a UK-centric operator.
In 2009 just 9% of revenues came from outside of the UK. Four years, some heavy spending and permissive regulatory changes later, and the rise to 15% appears hard-fought in itself.
Future proofing
Tax and regulatory changes in its native UK market of course means talk of geographical diversification comes as standard when it comes to listed operators, and no one is doubting Hills’ strategic direction.
It will feel the pain of the 15% Point of Consumption tax hard, while a crack-down on betting terminals within retail bookies also looms large.
However even if it achieves significant market share gains in regulated European territories and Australia, it’s hard to see how getting close to that 40% mark will be possible.
“It is not an easy thing to do,” says Karl Burns, an analyst at Panmure Gordon. “Acquisitions will have to be the way they achieve that goal but there’s not that many strong targets out there in Europe.
“And while the European market is growing still, it’s not major growth “ even when the Netherlands opens up we’re only talking about £250m in gross win. Forty percent would appear way beyond what they could achieve.”
The American dream
Topping also dropped the biggest hint to date that Hills would be ramping up its US investment in the coming years.
He claimed the firm could feasibly attract $100m of revenues from the US in the foreseeable future, a significant increase from the $8.2m it generated from its Nevada and Delaware-based sportsbooks this year.
Despite three states up and running with egaming, Hills currently has no online presence and backed out of a deal with a New Jersey casino after Topping concluded the risk was miles away from being worth the reward.
That leaves the operator somewhat in no man’s land when it comes to online markets such as California, where only poker will be legal. It has no partner and no poker software or brand of its own as leverage to attract one.
“[An online market entry strategy] is a problem we will have to work out ourselves,” Topping said.
Although Burns points out that should sports betting became legal across the US then Hills would be extremely well-placed to succeed. “Suddenly that $100m looks much more realistic,” he says.
And with regulation across the Atlantic unpredictable at best, it would again appear that only a chunky acquisition can propel Hills towards its international revenue goal.
Could we see Hills look at the likes of Sportech “ boasting a healthy mix of B2B and B2C revenues “ or racetrack and online wagering operator Churchill Down as acquisition targets?
What’s for certain is that for Hills to expedite US growth, it will likely have to venture outside of its comfort zone. “If it wants to become a force in the US it could take them into new area outside of where they are in the other parts of the world,” says Peel Hunt analyst Nick Batram.
Buying time
Having just spent £434m on buying out Playtech’s stake in William Hill Online and subsequently more than £450m on its two Australia-facing businesses, the operator might have to bide its time before reaching into its wallet once more.
“It will probably take two or three years before Hills can get the level of hedging to spend big again,” says Burns.
“They have to get the Australian business working well after a tricky start,” adds Batram. “The win rate and changes to currency exchange won’t have helped, but any more major acquisitions can surely only occur once Australia is generating strong profits.”
Topping’s prediction does appear ambitious and it will no doubt loom large over his successor in the coming years. However Hills has proved in recent times that it can be unpredictable, aggressive and relatively nimble in pursuit of its goals.
And for that reason it’s hard to dismiss it as a dominant global – and UK – force in the years to come.