Investment: William Hill valued at pounds 525m for March float

WILLIAM HILL, the UK's second largest bookmaker, yesterday jumped the last hurdle in the race to the stockmarket when it revealed that its March flotation would value the group at up to pounds 525m.

William Hill, which is being sold by the Japanese bank Nomura at a profit of around pounds 170m, plans to sell 300m shares at a price of between 155p and 175p, valuing the company at pounds 465m to pounds 525m. Including debt, the group will have a total value around pounds 900m.

The final price will be set at the end of the month, with dealings expected to start on 1 March. According to the prospectus released yesterday, up to 10 per cent of the offering is earmarked for retail investors and it has already received 80,000 enquiries. However, small investors will have to buy at least pounds 1,000 worth of shares - a level that is likely to deter many of William Hill's customers.

But for those who can afford it, William Hill looks like a reasonably safe bet. Its main strength is the ability of its 1,500 shops to generate high cash flow.

City analysts believe that this will enable the company to fund the development of the business and guarantee a healthy level of dividends to shareholders. Cash, and the proceeds of the flotation, will also help to bring down debt from the current pounds 500m to a more manageable pounds 375m, with around pounds 112m tied up in high-yield bonds.

Another bullish point about William Hill, bought by Nomura just 16 months ago from the ailing conglomerate Brent Walker for pounds 700m, is its market- leading position in telephone betting.

Unlike the traditional paper slips, phone bets yield a higher margin because of the lower fixed costs and transaction expenses. Telephone betting, alongside numbers' games such as Lucky Choice, will be the main driver of growth in the next few years. With 41 per cent of the market and around 140,000 accounts, William Hill is well placed to benefit from growth in this section of the market.

However, the outlook for William Hill's betting shops, which account for the bulk of the company's turnover, is bleaker. Most experts forecast minimal or no underlying growth in betting shops' revenue as the market is near saturation andsuffering from competition with the National Lottery.

With Internet betting still a long way from becoming a sizeable contributor to earnings, some analysts see William Hill's reliance on betting shops as a drawback. The other threat to William Hill shares is the chance of a sudden rise in betting and levy duty - two of the main drains on the company's resources. Experts pointed out that William Hill could be hit hard from unexpected tax rises.

Broker Warburg Dillon Read is forecasting a profit before exceptionals of pounds 91m for 1999, putting the shares on a forward multiple of 11 to 12.5, depending on the final price. This is a discount to the market and to William Hill's main competitors, the market leader Ladbroke and the fourth- largest chain Stanley Leisure, even though valuations are clouded by Ladroke's hotels business and Stanley's casino operations.

Bruce Jones, leisure analyst at Merrill Lynch, said the shares were worth a punt but investors should not expect spectacular growth. "This will be a dull but worthy stock with a bit of added spice from telephone betting."

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