Shares in William Hill (LSE: WMH) have fallen by over 7% today after it released a profit warning. It cited a tough third quarter of the year, with revenue falling by 9% versus the comparable period last year and operating profit declining by 39%. A key reason for this was the impact of the World Cup, which significantly impacted its gross win margins, as well as £23m in new and increasing gambling taxes.
Looking ahead, William Hill remains confident in the prospects for its online core markets and continues to deliver strong operating cost discipline. However, with the gambling sector enduring challenging trading conditions and the company’s shares trading on a price to earnings (P/E) ratio of 13.3, there appear to be better options elsewhere.
One such option is Debenhams (LSE: DEB). Unlike William Hill, it released an encouraging set of results recently which showed that its turnaround strategy is making steady progress. The company posted its first rise in net profit since 2012 as it reduced the scale of discounting so as to improve gross margins by almost 1%. Better stock management also contributed to its improved results and, with the company expected to continue to grow its earnings in each of the next two years, it appears to be on the path to improved performance.
Certainly, the change in CEO may cause a degree of uncertainty regarding its long term strategy. But, Debenhams appears to be through the worst of a challenging trading environment and, with it having a P/E ratio of just 11.6, appears to offer a relatively wide margin of safety.
Similarly, Santander (LSE: BNC) also has a very cheap share price, with it trading on a P/E ratio of just 10.6 which, given its upbeat profit forecasts, appears to be difficult to justify. For example, Santander is expected to grow its earnings in-line with the wider market, with 6% earnings growth forecast for the current year and 8% forecast for next year. As such, its shares could be rerated upwards – especially if the European economy gains strength due to the impact of quantitative easing.
Furthermore, Santander appears to be a on a sound financial footing, with the placing undertaken last year helping to beef up its balance sheet. And, with dividends being covered 2.5 times by profit, it appears to have sufficient reinvestment potential to improve its capital ratios, too.
While the UK supermarket sector has been akin to car crash in recent years, Morrisons (LSE: MRW) could be about to turn a corner. Under a new management team, it is expected to deliver double-digit growth next year and, beyond that, its improved strategy appears to be set to yield further sales and earnings growth.
For example, Morrisons is focusing on its core activities and is seeking to make substantial efficiencies and cost reductions. This, alongside exiting unprofitable activities, should provide a boost to its financial performance and, with previous years comparatives being relatively poor, even a slight improvement in Morrisons’ performance could cause investor sentiment to rapidly gain a boost. With its shares trading on a price to earnings growth (PEG) ratio of just 0.9, they appear to be a bargain.
