Paddy Hill or William Power? Stock Expert Suggests Mega-Merger

Though it is highly unlikely, stockbroker Numis suggested William Hill and Paddy Power should consider a merger.

Stockbroker Numis has made the latest news by releasing an investment note which argued that a combined operation between betting giants William Hill and Paddy Power would help the two companies dominate the UK and Australian online gambling markets.

According to Numis’ calculations, a potential merger between the Irish and British bookmakers could generate an annual revenue of about GBP 622 millions. In addition, it would help offset “the negative impact of regulatory change.”

In its investment note, Numis said: “William Hill and Paddy Power should merge. We believe this would create a much more attractive investment than either company alone.”

Merger would help business grow

Top online sports betting sites across the world:

• Bet365
• Paddy Power
• William Hill
• Betway
• Ladbrokes

Both William Hill’s operations and the Paddy casino and sportsbook are doing just fine on their own. Numis’ recommendation comes at a time when share prices rose slightly on the London Stock Exchange.

Meanwhile, both companies are raking in millions of pounds in revenue, every year. On the other hand, rival Ladbrokes is not doing as well as its top competitors, considering that share prices have dipped ¾p to 131¼p. Of course, business is still profitable, but having one even more powerful rival would surely cause revenues to soar.

“Strategically the enlarged business would be better positioned to compete in the UK and Australia in particular… and taking the best from each company would result in a business with outstanding technology and marketing,” Numis wrote in its report.

There would also be more opportunities to expand globally, the broker said. “It would give new impetus to Hill’s UK retail business while letting the marketing/analytics experts at Paddy Power much more territory to roam.”

“Plus, we really like Will Power as a name for the company,” the expert added.

Mobile gambling on the rise

William Hill might be UK’s top operator, but the company has been facing some challenges. The profits for 2013 were lower than expected, but this was only due to higher finance, acquisition costs and investments made in the company’s online business. Online net revenue was up 12% and income generated by William Hill’s retail stores grew by 10%. All in all, the company’s net revenue reached GBP1.49 billion in 2013, growing from GBP1.25 billion the previous year.

But 2013 was an important year for William Hill, as the company finally got a chance to expand on the Australian market by buying two local websites. It also bought back a 29% stake in its online operations, previously held by Playtech.

In a statement released at the beginning of the year, company representatives said the firm’s online sportsbook has grown 400% over the five years since it was first launched. In addition, 39% of all sports wagering is done via mobile betting platforms.

“Our product range is vastly expanded and the customer experience is greatly enhanced, with more improvements to come in 2014. The results reflect this, with mobile gaming net revenue growing by 175% on a 52 week basis,” the statement said.

Paddy Power betting on mobile growth

Irish bookmaker Paddy Power seems to be doing very well and constantly developing. The company reported a record pre-tax profit of EUR141 million for 2013. There has been growth in every division, with total revenue for last year reaching EUR745 million, a 17% year-on-year increase. Profits before tax also went up 5%.

The company’s mobile service is on the rise and climbed 73% to EUR212 million. Online revenues were also up 21%, reaching a total of EUR473 million. At the end of 2013, Paddy Power had 1.9 million active players.

“Investment in mobile will continue to be significant in order to take advantage of our market leading position and avail of its exceptional growth potential,” said Paddy Power chief Patrick Kennedy.

So while it’s clear that both companies are doing perfectly well on their own, each of them being among the top market leaders, Numis believes that merging them would make them unbeatable.

New challenges ahead

Both of these websites cater to players across the world, but a big part of their profits are generated by UK players. But now the new British gambling laws require all online casinos and sportsbooks to reapply for a new license if they want to be accepted in the UK, and to pay an extra 15% point of consumption tax.

Online gambling operators are put in the difficult position of choosing between paying more taxes or withdrawing from the British market. Maybe, in this context, a merger would be a good idea. But it’s very unlikely that two successful companies will agree to join forced and split their profits.