William Hill: Done and Done

I’ve only been into the bookies once in my life.

And I was so out of my depth I’ve no idea if I lost it all on a horse, a dog or the Northern Irish second division (come on Knockbreda FC). 

A terrifying experience all round.

But, while I clearly wasn’t born with the gambling gene, William Hill will be thankful that many Brits, and Americans, were.

In a trading update this morning, the high street gambling firm said third-quarter revenues were 9% lower than the same period last year. Still down, but a real improvement on the 32% dive it saw in the first six months of the year. A dearth of live sport and empty high streets hit the firm hard.

Context is everything this year and revenues heading towards the top right of the page will be encouraging. A 4% rise in online revenue and footfall showing signs of returning to pre-Covid levels will be welcome too.

The company’s 14 US outposts also boosted revenues, as they rose by 10% overall.

But, it’s not all triple sevens across the group just yet.

Around 10% of their 1,414 stores are located in areas where alert levels are still “very high”, and new gambling regulations in Germany could reduce earnings by roughly £10m next year.

Investing, not betting

The journey back to normality comes amid the firm’s £2.9bn takeover by US casino mammoth Caesars Entertainment. 

But rather than go into the merger details, I want to look at something a bit more interesting: the stake built in the company earlier this year by Betfred owners Fred and Peter Done. 

Ahead of a bidding war for William Hill between Caesars and New York’s Apollo Management, the Betfred brothers started to build their position, pointing to its shares becoming ‘cheap’ in March’s market tumble.

Fast forward to the end of September and a combo of the buyout and the market recovery turned nearly £60m into just under £200m for the Dones. 

Invest in what you know‍

For me the takeaway here is the importance of knowing your investment inside-out.

The Done brothers certainly knew their market, their competitors and the opportunity ahead of William Hill and were rewarded handsomely for it but you don’t need to be an industry leader dropping a cool £60m to be just as astute.

Having a solid foundation in what you're investing in is important, and that doesn’t mean getting familiar with a sector or product, it’s more to do with what you can comfortably assess given your own experience and skill.

Warren Buffett calls it our circle of competence and even he had limits that he’s had to work on, most notably tech before he schooled up.

Only then did he dip his toe into Apple… with around $35bn.

The size of that circle isn’t the main thing though, it’s being self-aware enough to know its boundaries.

And the reverse is also true. Fundsmith’s Terry Smith was the City’s top banking analyst for a decade. That led him to avoid banking stocks altogether because of how complicated their businesses had become. When you see how the sausage is made it can be disgusting, but just as helpful in the long run.

Even if you don’t trawl through a decade’s worth of company reports, the discipline to actually do the research, rather than rashly buying shares, will help you feel much more comfortable with your end decision and, crucially, will give you the context to interpret goings-on as they happen in real time.

Do you understand what the business does and where its revenue is coming from? Is management reliable and innovative? Is there enough of a barrier to entry, to stop competitors even thinking about joining the sector? 

That little extra bit of groundwork might not leave you with a £140m reward but it’s better than leaving it all up to chance.

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