Two new CEO's and a dog....

I'm going to cover three sets of results today so lets crack on.

First up we have had interim results from William Hill (WMH) the bookmakers which I'm sure needs no introduction. They try to put a positive spin on the announcement with the headline "Record-breaking World Cup wagering drives second quarter operating profit growth."
However, when you get into the results you see rather disappointingly after that headline that despite net revenue being up 7% PBT and adjusted earnings are down by 15% and 16% respectively. The one saving grace is that the dividend is up 8%. However digging into the detail this is not as bad as it seems as most of the blame lies with the retail business which had a weak Q1 and had to deal with some regulatory uncertainty. This was the main area of weakness which meant that underlying operating profits in retail were down by around 7% and by 2% for the group as a whole. The rest of the fall in earnings is explained by a rise in the tax charge as follows from the statement:

"Operating profit1 for the first half of 2014 was £176.9m, c2% below the comparable period (H1 2013: £181.4m).  Pre-exceptional profit before tax for the year was £148.2m (H1 2013: £156.2m) and pre-exceptional profit after tax attributable to equity holders was £119.7m, 8% below the comparable period (H1 2013: £130.6m).     
Basic adjusted earnings per share (EPS) at 14.1p, was 16% below the prior year. A key factor behind both the fall in profit after tax and the fall in basic adjusted EPS was the increase in effective tax rates in 2014, with H1 2013 basic adjusted EPS benefiting from a very low 6.6% effective tax rate following the release of deferred tax provisions arising from the enacted reduction in corporation tax rates. This compares to an effective pre-exceptional tax rate of 19.2% in the first half of 2014. The adjustments made to basic EPS relate to exceptional items and the amortisation of acquired intangible assets, adjustments which reflect the key business metric of operating profit1 and give a better sense of underlying business progress. Basic EPS was down 22% to 11.3p (H1 2013: 14.5p)."

The New CEO, James Henderson, touches on the regulatory background, highlights the recent international diversification they have achieved in Australia and the US and the growth in on line. He has three areas of focus going forward which are:

·      The multi-channel opportunity;

·      Innovation, technology and data; and

      .    Continued internationalisation.


He expands on these and the regulatory background in more detail so if you are interested I would recommend reading the full statement which you can access from the link at the start of this piece. Otherwise the balance sheet seems OK with debt/EBITDA of 1.8x and the Pension scheme having moved into surplus. 

As for the shares they also seem reasonable value on around 12x this years expected earnings (before any changes today) with 3.5% forecast yield which is more than 2x covered. As bookmakers tend to win in the long run it seems like a reasonable investment if you can stomach the nature of the business and the regulatory uncertainty.

The second new CEO today is Tim Cobbold at UBM who describe themselves as "a leading global events-led marketing services and communications company. We help businesses do business, bringing the world's buyers and  sellers together at events, online and in print. Our 5,000 staff in more than 20 countries are organised into specialist teams which serve commercial and professional communities, helping them to do business and their markets to work effectively and efficiently."

in their interim results stated "UBM has had a solid first half and remains on track to meet expectations for the full year." Again the devil was in the detail here as in common with many businesses there was a currency effect but this was offset by some one off gains as explained in the statement highlights:

"Although the reported performance was adversely impacted by currency headwinds, the Group performed well with good underlying revenue growth in both the Events and PR Newswire businesses and with higher operating margins in each of the three businesses."

* Reported revenue of £361.0m (H1 2013: £391.8m), down 7.9% reflecting a strong currency headwind; broadly flat at constant currency (0.3%), with solid underlying growth of 2.0% 

 * Adjusted operating profit up 8.7% to £87.4m (H1 2013: £80.4m), margins up by 3.7%pts, driven largely by non-recurring gains of £11.0m 

 * Events underlying revenue growth of 4.8%(2), led by Emerging Markets with operating margins up 0.4%pts to 28.8% (H1 2013: 28.4%) 

 * Other Marketing Services adjusted operating profit up to £4.4m (H1 2013: £3.6m) on reduced revenue of £48.5m (H1 2013: £66.4m) 

 * PR Newswire revenue up 2.6% (underlying) at £98.3m (H1 2013: £105.0m) at an operating margin of 22.8% (H1 2013: 22.4%) 

 * Adjusted diluted EPS up 12.1% to 24.0p (H1 2013: 21.4p) * Interim dividend of 6.8p (H1 2013: 6.7p) up 1.5%, in line with policy * Net Debt up at £452.1m (2013: £443.4m); Net Debt/EBITDA steady at 2.2x (2013: 2.2x) 

So it seems like steady as she goes here and the Mr Cobbold says he has completed his initial review and is planning to host a Capital Markets Day late in the year to present the plan for UBM's future development.

The shares trade on around 13x this years forecast earnings (before any changes today) with a yield of 4.5% based on the 2% or so forecast growth for this year, although this is only covered 1.7x by earnings. Seems OK if a little dull and especially as the earnings have not gone anywhere really since 2009 as they have been restructuring the business. So probably not one to rush out and buy but it may be interesting to see if the Capital Markets Day can demonstrate a more interesting future ahead.

Finally today for you I have Man Group (EMG) - which I have featured in the past as a dog stock with potential for a turn around and subsequently when they made some acquisitions. They have also reported interim results today which in the main seemed positive with assets under management (AUM) up by 7% as gross sales were up and redemptions were down leading to net inflows of $2.8 billion. This lead to earnings being up nearly 25% and the dividend was raised by over 50%. On this they state: 

"Man's dividend policy is to pay at least 100% of adjusted management fee earnings per share in each financial year by way of ordinary dividend. In addition, the Group expects to generate significant surplus capital over time, primarily from net performance fee earnings. Available surpluses, after taking into account required capital, potential strategic opportunities and a prudent buffer, will be distributed to shareholders over time, by way of higher dividend payments and/or share repurchases. 


Whilst the Board continues to consider dividends as the primary method of returning capital to shareholders, it will continue to execute share repurchases when advantageous.In line with this policy the Board has declared an interim dividend for the year to 31 December 2014 of 4.0 cents per share, being the adjusted management fee earnings per share for the six months to 30 June 2014 (refer to Note 11 to the financial statements (page 27)). The interim dividend will be paid at the rate of 2.37 pence per share."

So a promising start to the turnaround although the CEO said he remained cautious for the second half when the recent larger acquisition is expected to complete. Thus they seem to be keeping expectation in check and Mr. Market seems to be offering the stock 5% cheaper this morning so perhaps expectations were for better results than this or maybe it is just a bout of profit taking after the strong run up from sub 100 pence to 120 pence+ since I first wrote about it. Certainly the current forecast full year P/E of 17x now looks more full although the 4% yield is still reasonable although I note that earnings estimates have been coming down so presumably analysts will not factor in the acquisition effect until it completes - so that may then lead to upgrades for 2015 presumably - phew this is how I feel after all that!

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