William Hill is in a good position to win an auction, partly because it has got in first but more because the £500 million mooted offer represents a price that rivals might struggle to match. The turf accountant’s rule of thumb is that betting shops sell for about £1 million each. Hill’s offer is shy of the benchmark, representing an average price per site of £833,000. But Stanley’s bookies, by and large, occupy the less salubrious locations and may be reasonably expected to change hands at a discount to the norm. In any case, £500 million is equivalent to 14.7 times the profit made last year by Stanley’s betting division before goodwill amortisation, tax and interest charges. Stanley shareholders can assume the price is at least fair since William Hill shares trade on a similar multiple of earnings after interest, amortisation charges and tax. If you are a Hill shareholder you might wonder if the offer errs towards generosity.
Hill may yet see contesting bids emerge. Coral and Rank line up among trade buyers. A private equity backed buy-in is possible, too, although the operational efficiencies available to trade buyers put venture capital suitors at a disadvantage.
A sale will mark a big break with the past for Stanley. Lord Steinberg, chairman, is fond of regaling investors with stories of the group’s humble Northern Irish bookmaking beginnings. But it makes a lot of sense. Stanley may be better known as a bookmaker than casino operator, but while it is the nation’s fourth-largest turf accountant it is the UK market leader when it comes to the roulette wheel and the green baize.
Flush with cash from selling the bookies, Stanley could cement its lead by acquiring London Clubs. The Malaysian Genting International clan has a sizeable stake in both firms and that would help negotiations. But the competition authorities may balk. They objected when Capital Corp, since bought by Stanley, was the subject of a hostile bid by London Clubs in 1997.
Stanley’s cash could be used to develop new casinos. It could also give at least some of the cash back to shareholders. Stanley shares look fully valued, not least because of the 17 per cent rise in the price yesterday. But stock is worth holding.
Peter Hambro Mining
PETER HAMBRO Mining has established a reputation of delivering on promises that appear, without the benefit of hindsight, to be just a little bit too good to be true. Investors will be forgiven a modicum of circumspection since the company digs for gold in some of Russia’s farthest flung parts. Yesterday, however, Peter Hambro, the executive chairman, was forced to admit that the firm has missed one of it targets.
At this stage the majority of Hambro’s cash flow comes from the Pokrovskiy mine in Russia’s far eastern Amur region. Most investor attention, however, is focused on efforts to commercialise the nearby massive Pioneer deposit. Full-scale production remains a few years off yet, but as part of testing Pioneer’s viability, Hambro had planned to treat 100,000 tonnes of Pioneer’s gold-bearing ore at the Pokrovskiy site. But only 37,700 tonnes could be treated because the ore’s high gold content — which is double that of Pokrovskiy ore — choked the Pokrovskiy mill and delayed recovery of the precious metal. While Mr Hambro emphasised that all the gold was recovered eventually, it came too late to be included in Hambro’s 2004 numbers.
As reasons for broken promises go, this must count among the most excusable. From a profit reporting point of view, the Pioneer hiccup is little more than a timing issue and simply highlights the extent to which high-grade ore can be found in Russia’s largely undeveloped gold provinces.
Hambro produced 209,000 ounces of gold last year and Mr Hambro says the company remains on track to reach its one million ounce a year target by 2009. That ambition factors in full-scale production from Pioneer, further expansion at Pokrovskiy and additional ounces from several other projects. One of those, the Chagoyansk deposit which is being explored in venture with Rio Tinto, could contain 10 million ounces of gold.
The potential for hiccups less pleasant that the Pioneer example remains. Hambro shares may always sit in the high risk category but should be bought by those with the stomach for adventure.
Vanco
VANCO has nothing to do with vans. It is a telecoms supplier that does not own any handsets, any wires or any telephone exchanges either. But if full-year results reported are anything to go by, Vanco’s lack of physical assets is no handicap when it comes to generating profits. The company earned twice as much in the 12 months to January 31 this year on sales that climbed by a third. Net cash flow jumped from £1.3 million to £8.9 million.
The Vanco business model is most alluring. Most telecoms companies are still suffering from the overcapacity of fixed lines laid at the turn of the millennium. Vanco, however, acts as an agent of end users, sourcing services from the gamut of price-pressured network operators. It secures best prices for customers and, just as importantly, it uses its expertise to match individual customer requirements with the most appropriate telecoms supplier. Shares, showing solid investor support, have all but trebled since they were floated in 2001.
Yesterday’s results provide a couple of reasons to feel uneasy about Vanco. Earnings from a new arm that provides the financial wherewithal for customers to buy from Vanco accounted for about half the profits growth. Vanco says it retains no exposure to bad debts that may arise so it is not a form of vendor financing that caused such trouble among telecoms equipment suppliers in the late 1990s and early 2000s. But it is unclear how influential the financing arm is in generating new business.
The absence of a dividend will leave investors feeling cold, too. Sell.
