Does this make it a great contrarian play? Today’s full-year results would suggest not.

Fair value?

Despite being in line with management and analyst expectations, the numbers certainly weren’t pretty. 

Revenue fell 2.3% to £691m in the year to the end of June with pre-tax profit tanking almost 41% to £50.1m.

Much of this appears to be the result of a low win margin and “extreme weather” impacting on the company’s Grosvenor casinos. Had it not been for a focus on cost control at its Mecca sites, one imagines the numbers would have been even worse. As they were, venue revenue and operating profit were both down, by 3.9% and 4.5% respectively. 

Arguably more concerning, however, was the slowdown in growth at Rank’s digital offering. A 9.9% increase in revenue may not sound bad, but any loss of momentum is troubling when you consider that more of us are going online for a gaming fix rather than visiting traditional bricks and mortar sites.

In truth, bright spots were few and far between. Aside from recent acquisition YoBingo “performing strongly“, a 25% reduction in net debt (to £9.3m) and a modest, 2.1% rise to the dividend were the only other things to catch my eye. 

Not that Rank’s board seems overly concerned, stating that it had “full confidence” in the company’s strategy and that expectations for its financial performance in the current financial year hadn’t changed.

Admittedly, at 11 times forecast earnings, stock in Rank is approaching what I consider fair value. The 4.5% yield looks secure for now and might be regarded as adequate compensation while relatively new CEO John O’Reilly does his best to turn things around and realise what he regards as the company’s “underlying potential“.

Time will tell if his tenure proves successful. Considering the huge competition it faces from online competitors, however, I still think there are better contrarian opportunities elsewhere in the market.

A screaming buy, Rank is not.

A growth-focused alternative

As long as you don’t mind high valuations and aren’t fussed about receiving much in the way of dividends, I think a far better gaming-related option at the current time would be Quixant (LSE: QXT).

Last month’s trading update from the computing platform and monitors provider contained few surprises with revenue and pre-tax profit being in line with management expectations for H1. Interim results are due on 19 September. 

Having traded within the 400p to 450p range for the majority of the last year, Quixant’s shares look fairly fully-priced at 23 times expected earnings. Nevertheless, there could be further upside ahead if — as CEO Jon Jayal suggests — revenue returns to its traditional second-half weighting. A PEG ratio of 1.4 for the current year also implies that the shares aren’t overly expensive considering the company’s growth potential.

In addition to this, Quixant’s return on the capital it invests — a key metric for determining a company’s quality — was also far higher last year compared to that achieved by Rank (31% vs 16%). Taking this and a robust balance sheet into account, I know which stock I’d prefer.  

The post Down almost 30% in 2018, is this FTSE 250 stock a screaming contrarian buy? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As I’ll explain, traditional high street businesses with strong online operations can still have a lot to offer investors.

41%+ and counting

Shares of the world’s largest online bingo operator Jackpotjoy (LSE: JPJ) have risen by 41% since its flotation in February 2017. This solid performance has put the £600m firm well ahead of many other shares in which you could invest your money.

However, the stock’s momentum seems to have petered out and the shares have been largely flat since October last year. Even today’s full-year results haven’t moved the needle. The share price was almost unchanged at the time of writing, despite the company reporting a 14% rise in gaming revenue last year.

Investors don’t want to play

One reason for investors’ lack of enthusiasm could be that Jackpotjoy’s adjusted net profit fell by 9% to £76.1m last year. Adjusted earnings per share fell 10% to 102p, leaving the stock on a P/E of about 8.

A second concern is that high levels of debt seem to be preventing the group from paying a dividend. Although adjusted net debt fell by 5% to £387.3m last year, that’s still equivalent to 3.57 times adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

A net debt-to-EBITDA ratio of more than 2.5 times is normally considered high. Jackpotjoy’s ratio of 3.57 times is uncomfortable in my view, especially as growth doesn’t seem particularly strong.

I’m out

The group’s adjusted earnings are expected to rise by 13% to 115.5p per share this year, leaving the stock on a forecast P/E of just 7.1.

But with a mountain of debt and no dividend, I believe there are better options elsewhere.

A sure winner?

FTSE 250 firm Rank Group (LSE: RNK) is the operator of Grosvenor Casinos and Mecca Bingo. It also operates a number of online brands.

The group’s mix of online and physical venues means that its internet operations have very strong brand recognition, which is helping to drive strong growth.

UK digital revenue rose by 16% during H1, while digital operating profit rose by 56% to £11.4m. That’s almost level with the £12.7m operating profit provided by Mecca venues during the same period.

Despite this, overall revenue growth is slow. Both Grosvenor and Mecca venues saw a fall in visits during the six months to 31 December, limiting growth.

A stock I’d buy now

Rank’s profitability improved significantly during H1. Adjusted pre-tax profit rose by 17% to £40.2m while adjusted earnings climbed 16% to 8p. These gains were matched by cash generation from continuing operations, which rose 19% to £61.9m.

The group ended calendar 2017 with a net cash position of £4m and free cash flow of £65.2m, or 16.7p per share. This covers the forecast dividend of 8p per share twice, making this payout very safe indeed.

Although Rank will need to manage a gradual shift from venues to online, progress so far seems encouraging. With the shares trading on a 2018 forecast P/E of 13 and offering a cash-backed 3.7% yield, I believe this stock deserves a buy rating.

The post Why this FTSE 250 dividend stock could be one of the best stocks to buy now appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, has the time come to sell leisure stocks Cineworld (LSE: CINE) and Rank (LSE: RNK), both of which have seen their share prices lose momentum over recent weeks? Here are my thoughts.

Stay the course

Since reaching a high of 740p a couple of months ago, shares in £1.9bn cinema operator Cineworld have come off the boil. That’s despite the company’s last trading update being uniformly positive.

From January to May, Cineworld managed to grow revenue by 15.8% on a constant currency basis, driven largely by a strong film slate that included Beauty and the Beast, The Lego Batman Movie and Guardians of the Galaxy Vol 2.

The company saw strong admissions growth across its estate, with the UK, Israel, Romania and Slovakia markets doing particularly well. A near 20% rise in retail revenue was also seen, thanks in part to the company’s decision to open more Starbucks outlets and VIP sites at its cinemas. 

So, why the dip?  

In addition to some investors deciding to take profits after such a stellar run, there’s also the possibility that August’s interim results won’t quite be as good as expected thanks to the recent warm weather and a spate of poorly-received recent releases (including the latest Pirates of the Caribbean and Transformers instalments). 

As a medium-term holding however, Cineworld remains attractive. Operating margins and returns on capital are consistently decent and levels of free cashflow look healthy. There’s also a forecast 3% yield available, safely covered by profits. Moreover, the schedule of film releases over the remainder of 2017 looks promising, with Star Wars: The Last Jedi, Thor: Ragnarok and Justice League likely to be big draws.

At 18 times earnings for 2017, Cineworld isn’t cheap. Nevertheless, I’m not sure taking profits at the current time would be wise.

Still bearish

As an investor, it’s always a good idea to admit one’s mistakes. My negative call on Mecca Bingo owner Rank following a fairly uninspiring set of interim results in January was way off the mark. Despite falling back slightly over recent weeks, the stock has still managed to climb 14% since voicing my concern over its poorly performing (but significantly large) retail division.

At a risk of sounding stubborn however, my thoughts on the company’s prospects haven’t changed. Based on its most recent trading statement, the physical casinos and bingo sites continue to be a burden, with like-for-like revenue declining by 1% and 2% respectively over the 46 weeks to mid-May. In complete contrast, digital revenue at the mid-cap grew by 13%.  

To be clear, Rank isn’t the worst investment out there. At 14 times earnings, the shares aren’t particularly expensive and there’s a fairly tempting 3.3% yield on offer to entice investors. Debt levels have shrunk noticeably over the last few years and, like Cineworld, Rank should also be able to survive the prevailing economic uncertainty thanks to the relatively lost-cost nature of the activities it promotes.

Nevertheless, with earnings unlikely to rocket anytime soon and a sizeable estate to maintain, I’d be tempted to take at least some money off the table.

The post Time to dump these high-flying stocks? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Losing streak?

Although like-for-like group revenue grew by 2% (to £378.6m) over the six months to the end of December, like-for-like revenue from venues owned by the £754m cap Maidenhead-based business was pretty much flat (a rise of just £400,000). Overall group operating profit sank 9% to £36.6m, leading earnings per share to slip 7% to 6.9p.

It wasn’t all bad. While its retail division remains considerably larger, Rank’s digital revenues rose 11% to £52.4m, underlining the growing trend for people to seek their gaming fix online. Investors should be happy that debt levels are now 37% lower than the previous year and those investing for income will welcome an 11% (2p) hike to the interim dividend. Although reflecting that trading in its retail casino and bingo businesses had been “challenging“, Henry Birch, CEO of Rank stated that the group was still confident that it would make “good strategic progress” this year.

With shares down over 6% in early trading however, the market isn’t convinced and nor am I. While a price-to-earnings (P/E) ratio of just under 12 suggests that shares in Rank are firmly in value territory, the lack of consistent profit growth over the last few years makes me think there are better opportunities elsewhere. Moreover, the slowdown in revenue from its retail operations is worrying, particularly as activities like bingo are relatively inexpensive. Factor-in rising inflation and employment costs and things start to look rather bleak.

That said, the well-covered, 3.7% yield may be sufficient reason for some to invest, especially as this is forecast to rise even higher in 2018, to 4.2%. Whether this kind of dividend growth can continue is debatable, in my view.

A better proposition?

An alternative for those interested in companies that offer relatively low-cost leisure experiences might be Hollywood Bowl (LSE: BOWL).

Back in December, the company reported on a “transformational year” following its IPO, with total revenue growing just under 24% to £106.6m in the year ending 30 September, with a rise of 6.8% on like-for-like revenues. The business also saw a 6.3% increase in the average spend per game and a 16.3% rise in the volume of games played. What a difference when compared to today’s figures from Rank. 

Any downsides? Even though net profits are expected to rise £16m in 2017 (based on forecast earnings per share growth of almost 144%), the company’s easily replicated business model means competition will remain fierce. Nevertheless, the recent acquisition of Bowlplex — a move which allowed the £278m cap to add 10 new sites to its estate — is a positive step. According to the company, these centres are already delivering returns ahead of expectations.

In sum, while its bi-annual payouts look attractive, I continue to be sceptical over Rank’s ability to do anything more than tread water for the foreseeable future.  Shares in Hollywood Bowl, which also come with a decent 3% yield for 2017, won’t exactly turbocharge your wealth, but based on growth prospects, they look a far better play.

The post I’m still bearish on this income stock despite it being 35% cheaper than last year appeared first on The Twelfth Magpie.

More reading

• 3 quality FTSE 250 stocks to consider with dividend yields above 4.5%
• How are these FTSE 250 growth and dividend stocks so cheap?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Playtech’s acquisition of ECM seems to be a sound move. It helps to improve Playtech’s position within the UK bingo market, since ECM is a leading provider and licensor of digital bingo software. In financial year 2016 ECM reported revenues of £9.1m, and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of £4.5m. As such, a price of £15m seems to be fair given the financial performance of ECM.

The deal provides Playtech with increased scope to provide omnichannel solutions to bingo operators by connecting their retail and online operations, as well as providing a platform to supply Playtech content. Furthermore, ECM’s complete customer support facility provides technical and repair services for all current and legacy products. This is in addition to its extensive range of handheld devices that could prove popular in an increasingly digital industry.

Looking ahead, Playtech is forecast to increase its bottom line by 21% in the next financial year. When combined with a price-to-earnings (P/E) ratio of 16.1, this equates to a price-to-earnings growth (PEG) ratio of only 0.8. This indicates that Playtech offers growth at a very reasonable price and could deliver strong share price gains over the medium-to-long term.

Low rank?

Certainly, Playtech’s outlook is more positive than sector peer Rank Group (LSE: RNK), which is expected to record a fall in earnings of 1% in the current financial year. This has the potential to hurt investor sentiment in the stock and could lead to underperformance in the short run. However, with Rank having a P/E ratio of 12.2, it continues to offer good value for money and could be subject to an upward rerating in the long term.

Where Playtech has a clear advantage over Rank is with regards to its income prospects. Playtech currently yields 5% versus 3.8% for Rank. Playtech’s dividends may be covered 1.3 times versus 2.2 for Rank, but with Playtech having superior earnings growth prospects its dividend appeal is likely to remain higher than Rank’s for some time yet.

Of course, the gaming industry has been the subject of intense M&A activity in recent years. Sector consolidation seems likely as it provides greater size, scale and diversity in what is becoming an increasingly competitive market. Therefore, while relatively small, Playtech’s acquisition of ECM is very logical and it provides the company with a new growth space for the long run.

As such, now could be good time to buy Playtech, with the company offering growth, income and value appeal. Today’s acquisition should enhance its income and growth prospects and could help to boost its share price performance over the medium term.

The post Is this stock a buy after announcing a £15m acquisition? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Game on

Following its unsuccessful joint bid with Rank to acquire William Hill, it’s not really surprising if today’s half-year report from online gaming company 888 (LSE: 888) attracts more attention than usual. Positively for investors, the results contain some excellent numbers. Revenue at 888Casino rose by 31% with active players in Q2 up 35% year-on-year. Even more impressively, revenue at 888Sport rocketed by 63% to $25m thanks to Euro 2016, increased marketing and successful launches in Italy and Denmark.

CEO Itai Frieberger is also optimistic on H2 performance: “Trading in Q3 has started well with average daily revenue until 27 August 2016 15% above strong previous year comparatives and 22% higher on a like-for-like basis. With this strong momentum the Board remains confident of delivering against expectations for the full year.”

Given this confident tone, it’s unsurprising that shares in 888 were up 3.5% to 222.5p in early trading. With a reasonable forecast price-to-earnings ratio (P/E) of 17, the company looks fairly valued compared to many in the gaming/betting field. A forecast dividend yield of over 4% is the cherry on the cake.

Strong interims

Like 888, health and fitness facilities provider Gym (LSE: GYM) reported some decent figures today. Revenue jumped by just over 25% to £36.1m. The adjusted profit before tax figure of £4.6m is in sharp contrast to the £0.8m loss reported for the first half of 2015. Strong cash generation has also allowed the company to reduce its net debt to £2.5m, down from £7.1m last December.  

As far as operational progress is concerned, the company opened six news gyms in the first half (bringing the total estate to 80) and appears on track to meet its annual target of 15-20 openings. There was a 19.4% increase in membership and 2.1m more visits to its sites compared to this time last year.

With these numbers, it’s understandable that CEO John Treharne’s comments were upbeat: “We are confident that our low-cost, disruptive positioning in the market place, our well-developed rollout plans and our strong financial position bode well for further rapid and measured profitable development and progress, whatever the economic environment.”

In the aftermath of the EU referendum, investors are likely to be comforted by the end of that sentence. Its flexible approach to memberships and affordable subscription charges should mean it’s able to withstand any Brexit-related wobbles. Nevertheless, given the intensely competitive industry it operates in, I still need to be convinced that Gym is able to distance itself from rivals, particularly as its budget offering should be relatively easy to copy and perhaps improve on. 

At the time of writing, Gym’s shares are down just over 3%, following a substantial 13% rise on Tuesday. Despite this drop, the high valuation (P/E of 45) suggests that prospective investors may be better off waiting for a more attractive entry point.

The post Should investors flock to these two companies after today’s impressive results? appeared first on The Twelfth Magpie.

More reading

• 2 stocks to consider buying to tap into a booming £279bn market

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Clear favourite?

Initially, the numbers look pretty good. Total revenue increased by 18% to £759m over the first half of the year with double-digit growth evident in all four of the company’s divisions (Online, Australia, Retail and US). Euro 2016 performance in the second quarter was a particular highlight. Nevertheless, one-off costs of almost £200m as a result of the recent merger put a damper on things, prompting the company to report an operating loss of £47.5m for the half. Shares dipped almost 3% on the news.

CEO Breon Corcoran stated that the company had “sustained good momentum through a period of considerable change“. He also reflected that the merger between Paddy Power and Betfair was now “largely complete” and that “synergies are being delivered ahead of schedule“, the benefits of which will be felt in 2017. Despite acknowledging the highly competitive industry that Paddy Power Betfair operates in, Cocoran stressed that the company’s strong market position and increased scale should mean that consistent growth is on the cards for the foreseeable future.

I suspect he might be right. The question investors need to ask, however, is whether the shares are still worth buying given Paddy Power Betfair’s high forecast price-to-earnings (P/E) ratio of 27. Perhaps the best way to decide is to scrutinise the fortunes of two of its biggest competitors.

Rank outsider?

While Paddy Power Betfair’s results are something of a mixed bag, its investors are possibly less concerned than those holding shares in William Hill (LSE: WMH). Having become increasingly bemused by the company’s apparent lack of direction over the last year, I wasn’t surprised by its rejection of a joint £3.6bn bid by Rank and 888 and the ousting of CEO James Henderson in July.

The next few weeks could be crucial. Rumours are now circulating of two new takeover bids being prepared, one from Australian businesses Tabcorp and Tatts Group and another from a private equity group. An announcement that the company is seriously considering an offer could see the share price spike.

But while new takeover bids are certainly very possible, they aren’t guaranteed. Moreover, the company’s recent statement that earnings will be at the top end of expectations could be overly optimistic. With its shares on a forecast P/E of 14,  it’s a lot cheaper to buy a slice of William Hill. For me, however, this feels like a speculative investment at the current time.

Dark horse?

After a few rotten years, holders of Ladbrokes (LSE: LAD) have been celebrating something of a winning streak lately. Its share price is up almost 50% since late June in anticipation of its merger with Coral. Should this proceed smoothly and earnings improve, things could get even better for the Harrow-based bookmaker.

Nevertheless, like its FTSE 100 peer, shares in Ladbrokes now trade on a fairly high forecast P/E of 21, suggesting that for now at least, investors may find better value elsewhere. A dividend yield of under 2% is also unlikely to tempt income hunters. Given this, and the uncertainty surrounding William Hill, my money’s on the biggest player on the field.  

The post Is Paddy Power Betfair still the best horse to back after today’s results? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Housing boom still on?

Shares in housebuilder Persimmon (LSE: PSN) rose by 5% this morning, after the firm said sales since 1 July have been 17% higher than during the same period last year.

Fears of a post-referendum slump have so far proved unfounded. Persimmon’s shares have rebounded and are now only 10% lower than they were before the referendum. The group’s operating margin rose by 3.2% to 23.8% during the first half, while completions rose by 6% to 7,238 homes. Pre-tax profits were 29% higher, at £352.3m.

Persimmon’s £2.76bn capital returns plan remains unchanged. The company paid out 110p per share in April, and expects to make the next 110p payment in July 2017.

Persimmon shares trade on 10 times forecast earnings and offer a 5.9% forecast yield. However, profits are expected to fall by around 10% next year, pushing the forecast P/E multiple towards 11.

In my view, the current valuation is about right. I’d hold.

A confident outlook

Bingo hall and casino operator Rank Group (LSE: RNK) said this morning that adjusted pre-tax profit rose by 4% to £77.4m last year, lifting adjusted earnings per share by 5% to 15.4p.

The final dividend for last year will be 4.7p, an 18% increase on the previous year. This takes the group’s total payout up by 16% to 6.5p, giving a yield of 2.9%.

Rank’s bricks and mortar bingo and casino operations may seem dated to many investors, but they seem to generate plenty of cash. The company had to make a £21.7m tax payment last year in relation to a disputed tax planning scheme. Despite this, net debt fell by 22% to just £41.2m, and the group generated enough free cash flow to cover the dividend 1.6 times.

The company is now focusing on digital growth as it moves on from its failed attempt to combine with 888 Holdings and William Hill. The shares currently trade on 13.5 times forecast earnings and offer a 3.2% forecast yield. I believe this could be a decent level for new and existing shareholders to buy.

Is this 7% yield a buy?

Industrial services firm Cape (LSE: CIU) saw adjusted pre-tax profits fall by 30% to £14.9m during the first half of the year. Although revenues for the period were 10% higher at £396.3m, lower margins pushed profits down.

Cape expects trading to improve during the second half of the year. The firm says that full-year expectations remain unchanged. This puts the stock on a forecast P/E of 7.5. The expected dividend of 14p per share means that Cape offers a prospective yield of 7.7%.

These shares ought to be cheap, but I’m not sure. New claims relating to historic asbestos activity mean that the group has decided to make an additional £9m payment into its claims fund this year. Net debt of £113.7m also remains stubbornly high, relative to forecast profits of £27.9m.

Cape’s profits are expected to fall by 10% this year, and be flat in 2017. It may still be too soon to buy.

The post Are these stocks too cheap to ignore after today’s results? appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?
• A 6.7% forecast yield and 53% below ‘fair value’! 1 stunning FTSE income stock for investors to consider today?
• How much do you need in an ISA to target a £2,066 monthly passive income in 2066

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Should investors buy into a proposed merger between gambling firms William Hill (LSE: WMH), Rank Group (LSE: RNK) and 888 Holdings (LSE: 888)?

Shares in all three companies rose this morning, after yesterday’s Sunday Times reported that Rank and 888 have formed a consortium to prepare a bid for William Hill. The story was confirmed by early morning statements from all three companies.

William Hill was the biggest riser when markets opened, with the firm’s shares up by 7% at the time of writing. However, the high street bookmaker’s management played it cool this morning, warning investors that “it is not clear that a combination of William Hill with 888 and Rank will enhance William Hill’s strategic positioning or deliver superior value…”

Reports over the weekend suggest that discussions have been ongoing for a number of weeks. This suggests to me that boardroom disagreement about William Hill’s response to the approach by Rank and 888 may be one reason for the sudden departure of William Hill’s chief executive last week.

Does the deal make sense?

The gambling sector is seeing a wave of big mergers. Paddy Power recently merged with Betfair, while Ladbrokes is in the middle of a deal to combine with Gala Coral.

The logic of combining 888, Rank and William Hill is fairly obvious. William Hill and Rank Group have a strong set of sports betting and gambling brands, with a comprehensive high street presence.

888 Holdings is a fast-growing online operator that should be able to accelerate William Hill’s disappointing online performance. Combining the three firms could cut costs, improve scale and provide faster online growth.

The suggested combination isn’t entirely new, either. William Hill tried to buy 888 Holdings last year for £700m, but couldn’t persuade key 888 shareholders to accept the offer.

How would the deal work?

There’s no word yet on the likely value or structure of the deal. What seems to be likely is that Rank and 888 Holdings would merge before buying William Hill, which is a much larger company.

In my opinion, William Hill shareholders would probably be looking for an offer of at least 400p. The firm’s share price has flirted with this level a number of times over the last five years. However, earnings forecasts for the bookmaker have fallen by 17% over the last year, putting the group in a relatively weak negotiating position.

Earnings are rising strongly at both Rank and 888, and William Hill shareholders could be attracted by an opportunity to lock in a decent profit.

What should we do?

Talks are still at an early stage. There’s no guarantee that Rank and 888 will make a bid for William Hill.

Even after recent gains, shares in all three companies look quite reasonably valued and offer decent dividend yields. In my view, the best plan for shareholders in these firms is to hold on and wait for more concrete news. I don’t see any reason to take action now.

Given that the deal may not happen, I think investors considering buying should focus on the most attractive standalone companies. In my view these are 888 and Rank, although I’d want to look more closely at both before making a decision.

The post Is William Hill plc a buy after bid approach from Rank Group plc and 888 Holdings Public Limited Company? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The key takeaway is that the final two months of the 2015 financial year were stronger than expected for the company and its top line increased by 14% during that period. This brings its revenue rise during 2015 to 13%. As a result, the company expects underlying profit for the 2015 year to be higher than in the 2014 financial year, with operating margins being higher than previous guidance at 13.5%.

The final two months of the year benefitted from increased activity in some traditional interdealer product areas. This included the oil market that has continued to provide a relatively high level of activity, while market volumes in equity products have also shown improvement. With Tullett Prebon also cutting costs and becoming increasingly efficient, it appears to be in the midst of a major turnaround.

With its shares trading on a price-to-earnings (P/E) ratio of just 9.7, it appears to offer considerably more upside than 20%. As such, it seems to be a strong buy for the long term, although it’s likely to remain volatile.

Limited growth

Also reporting today is gaming company Rank (LSE: RNK). Its first half performance has been positive and shows that the company is making encouraging progress with its long-term strategy. For example, sales were up by 5% on a like-for-like basis and its digital platform migration is on target to go live by the end of the first quarter of the current year.

Looking ahead, Rank is forecast to increase its bottom line by 8% in the current financial year. While that would be a relatively impressive rate of growth, the company’s valuation indicates that there’s limited upside potential. For example, Rank trades on a P/E ratio of 17.9 and this equates to a rather unappealing price-to-earnings growth (PEG) ratio of 2.2 when it’s combined with the forecast growth rate. Because of this it may be prudent to look elsewhere for future share price growth.

Long-term potential

Meanwhile, shares in Santander (LSE: BNC) have come under severe pressure from poor performance in the bank’s key market of Brazil. Its economy has a rather downbeat outlook and so Santander’s financial performance may not improve dramatically in the short run. With the UK economy facing uncertainty due to a weakening global outlook, another of Santander’s key markets may also hurt its performance moving forward.

Despite this, buying Santander for the long term appears to be a very sound move. It trades on a P/E ratio of only 7.4 and yields 5.4% from a dividend that’s covered 2.4 times by profit. This indicates that total returns could be above and beyond 20% in the long run, but that a volatile share price performance could lie ahead.

The post Do Recent Updates Indicate 20% Upside For Banco Santander SA, Tullett Prebon Plc And Rank Group PLC? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.