Activist Idea

July 23, 2020

Company: William Hill Plc (WMH LN) Sector: Consumer Discretionary An Activist Investor Can Increase the Opportunity: Activist Opportunity for Odds of Success in One of the Hottest Break-Up Jim Osman [email protected] Trends in the US… Sports Betting Research Dept. [email protected] In recent years, William Hill’s (WMH) stock price has significantly Contact: +1 (973) 867 7760 underperformed its peers and the rest of the market due to missteps and Particulars 1-Year Target SOTP Target missed opportunities by the management, which resulted in three different Target Price 153p 209p CEOs over the last five years. While an unfavourable regulatory restriction in the UK and the COVID-19 related closedown depressed its stock further, WMH Current Price 116.7p holds a leading market position to benefit from the estimated $8 billion US sports betting market. Up / Downside (%) +31% +79% As a result, we see tremendous value unlocking potential opportunity in Key Trading Details WMH’s US business by significantly outperforming its larger peer segments. Market Cap (in £ m) 1,205 Price Graph Vs. Index… Enterprise Value (in £ m) 1,642 240 34m

Avg. Volume (30 days) in m 7.5 180 26m

Avg. traded value (30 days) in £m 871.8 120 17m Top 5 Shareholders GBp Name Stake 60 9m M&G Plc 5.35%

Done Brothers (Cash Betting) Ltd 5.16% 0 0m

Jul-19 Jul-20 Jul-20

Jan-20 Jan-20 Jan-20

Jun-20 Jun-20

Oct-19 Oct-19

Apr-20 Apr-20

Sep-19 Sep-19 Feb-20 Feb-20

Dec-19 Dec-19

Aug-19 Aug-19 Aug-19

Nov-19 Nov-19

Mar-20 Mar-20 May-20 Schroder 5.12% May-20 WMH Volume (RHS) FTSE 100 (Rebased to WMH) Artemis Investment Management 5.06% Financial Trends Silchester International Investors LLP 5.01% Particulars FY19 FY20E FY21E Revenue: Latest Fiscal Year End Revenue (in £m) 1,582 1,202 1,533 Growth % -24% +27% 1,630 1,622 EBITDA (in £m) 271 152 241 Margin % 17.1% 12.6% 15.7% 1,610 Growth % -44% +59%

1,593 Key Management & Executives

millions 1,590 Name Designation Tenure

£ £ 1,582 Roger William Devlin Chairman +1 year Ulrik Bengtsson CEO & Executive Director 10 months 1,570 Matthew Ashley CFO & Executive Director 4 months Joe Asher USA CEO 8 years 1,550 Satty Bhens Chief Product and Technology Officer 6-10 months

2017 2018 2019 Sources: The Edge® Spinoff Research Department, Company filings

Page 1 of 8 July 23, 2020 Table of Contents The Good, The Bad and The Ugly… ...... 3 Management’s History of Destroying Shareholder Value / Three CEOs in 5 Years Significant Underperformance Versus its Peers and the Market Difficult Operating Environment Added to WMH’s Retail Troubles Firm-Wide Growth Stagnates While Online Business Offsets Revenue Drought WMH to Merge Two of its Divisions into One What’s the Opportunity at WMH? ...... 5 Huge Value Unlocking Opportunity by Listing WMH’s US Business in the US Now’s the Time to Exploit the Exponential Growth Opportunity Strategic Partnership Gives First Mover Advantage in Expanding its Scale in the US Recent Share Sale and VAT Recovery Provides Liquidity Cushion Hint of Potential Takeover as Competitor Buys and Increases Stake in 2020 Scenario Analysis Highlighting Expected Market Cap of Segments if Separated Today Valuation & Peer Matrix – William Hill Plc (WMH LN) ...... 7 Key Links & Summary ...... 8

Page 2 of 8 July 23, 2020 The Good, The Bad and The Ugly… Management’s History of Destroying Shareholder Value / Three CEOs in 5 Years The 86-year old William Hill Plc (WMH) is one of the most established betting and gaming companies in the world with strong brand value in the UK. Likewise, without even knowing it, WMH is also the largest bookmaker in the US with one in every four bets placed with William Hill, giving the company a 25% national market share and making it America’s #1 sportsbook. However, WMH’s recent stock price has not reflected this brand value and we believe bringing on the right investor can help recreate shareholder wealth. Over the last five years or so, WMH has been unable to hold down a CEO for any long-term period. As evident by the TSR table below, WMH has been unable to keep up with its peers when it comes to implementation or consolidation plans and as a result, destroying value for their shareholders. • WMH Loses Top Position in the UK: In 2016, WMH lost its status of being the largest retail bookmaker in the UK after the merger of Ladbrokes and Gala Coral formed Ladbrokes Coral Group plc, creating a £2.3bn gambling player. Likewise, in 2015, Paddy Power and Betfair merged in a £5bn deal to create the world’s largest online betting company. Then CEO, James Henderson, who served a two-year stint was let go from his post allegedly for being unable to improve WMH’s digital arm. With WMH’s Online business having stalled under his watch in 2015 and the lackluster mobile website and app, shares rose 6% after the announcement. • Failed Merger Left WMH Struggling to Find a Partner: With the trend of gambling companies consolidating at the time, CEO Philip Bowcock failed to take advantage of this opportunity. In 2016, WMH was in talks with Canadian online gambling company Amaya, Inc. (AYA) to create a merger of equals. However, this merger was abandoned as Parvus Asset Management (which held a 14% stake at the time, WMH’s largest shareholder) pushed against this strategic merger. AYA would eventually rename itself to The Stars Group, Inc. and merger Flutter Entertainment in May 2020. After three-years on the job, Mr Bowcock stepped down from his role at the end September 2019 two months after cutting about a third of its betting shops and jobs in Britain. It has been noted in the market that some believe that WMH overpaid for a 92% stake in the online gaming operator Mr Green in 2019 for £242m. • Digital Specialist Holds the Leading Position: WMH’s current CEO Ulrik Bengtsson (who is 10 months on the job), was WMH’s head of digital operations to replace Mr. Bowcock. Mr. Bengtsson joined WMH in April 2018 and was previously President and CEO of Betsson AB, a gaming company listed on the Nasdaq Stockholm. During his time at Betsson, Mr. Bengtsson managed the acquisition and integration of eight companies. Failing to Beat Estimates Over the Last 2 Years: WMH has missed the last 4 semi-annual consensus revenue estimates. Significant Underperformance Versus its Peers and the Market

Total Shareholder Return: WMH Vs. Peers & Index

1-Year TSR 2-Year TSR Annualized 3-Year TSR Annualized

80% 69% 40% 15% 20% 13% 60% 19% 41% 20% 1% 1% 40% 0% 28% 23% -37% 20% 0% -7% -2% 0% -2% -12% -20% -20% -14% -22% -20% -8% -26%

-40% -40% -40%

TFTMC

888:LN

GYS:LN

TFTMC

GYS:LN

888:LN

GVC:LN

GYS:LN

GVC:LN

FLTR:LN

WMH:LN WMH:LN WMH:LN Sources: The Edge® Spinoff Research Department, Company filings; Note: TFTMC – FTSE 250 Total Returns Index / TSR Returns are as of July 22, 2020;

Page 3 of 8 July 23, 2020 Difficult Operating Environment Added to WMH’s Retail Troubles The global pandemic has reeled over many retail businesses, including hospitality and departmental stores. WMH’s has also not been immune to the pandemic’s impact on business operations. Decreased footfalls at its retail gambling outlets, coupled with postponement of major sporting events has created a huge dent in its Retail business’ top line. Regulatory Cap on Fixed Odds Betting Terminals: The business in the UK was already suffering due to the adverse ruling by the UK parliament back on April 1, 2019 where it has now enforced a limited maximum bet on Fixed Odd Betting Terminals (FOBTs) to £2 from the previous £100, as a view to protect vulnerable people. What this means is that typically each betting terminal limits the better to 1 spin every 20 seconds. As a result, a £100 maximum bet could mean the customer/gambler could lose up to £18,000 an hour if placing the maximum bet every time. Now with the maximum bet being £2 maximum, this drastically decreases the maximum bet loss down to £360 an hour. However, WMH used to have +2,000 betting shops but now because of this new regulatory cap, the amount of betting shops has fallen to 1,568 after being forced to close down more than 700 shops, stores that were dependent on the FOBT revenue. The first half of FY20 saw the Retail segment net revenues drop by ~50% YoY on a like for like basis. Additionally, the staggered store openings by the company, which were shut due to the pandemic and the expectation of a drop in the footfalls owing to social distancing, we believe the Retail business (~45% of FY19 Revenues) could see a flat performance for this division in the near future. Firm-Wide Growth Stagnates While Online Business Offsets Revenue Drought WMH’s Online business (~48% of FY19 Revenues) has seen its performance improve over the years and has been the stabilizing ship for the company, offsetting the dropping revenues and margins of the Retail business. The contribution for the Online business has seen an uptrend over the years, from contributing around 38.7% of FY17’s revenues to around 47% of FY20’s revenues. Its contribution towards operating profits has also increased from around 44% in FY17 to ~52% in FY20. However, the subdued Retail division’s performance has restricted revenue growth for the company as a whole. Where the Online Business has shown a revenue growth of around 16.4% YoY for FY19, the Retails division’s revenue has seen a 20% drop, which lead to a 2.5% drop in firm wide revenues for the same period. The first half trading update also gave a bleak picture, where its Retail business dropped by 50% vs. just a 1% drop registered by the Online Business. WMH’s Online Business Sees Recent Performance Resurgence: During the initial onset of the COVID-19 pandemic, major sporting events were either cancelled or postponed indefinitely. This created a huge dent not only on WMH’s retail business but also its online sports betting, which saw revenues dry out due to the lack of sporting events. However, WMH witnessed a strong recovery in its sports betting revenues, assisted by the resumption of Belarussian football, Australian horse racing, etc. We see the business rapidly reverting to growth. Furthermore, the closure of casino gambling avenues and sports suspensions actually turbocharged online casinos, which provided great impetus to online business’ top-line. WMH to Merge Two of its Divisions into One From September 2020, WMH will be merging its UK Retail Division with its Online Division. The company did not provide any specific update as to why they are proceeding with this move other than an effort to help boost its results in 2021 as well as to find a more streamlined way of doing future business. We believe this is also a ploy to cut their operational expenses by aligning the labour force and sharing financial resources with the Online division and thereby conserving cash for the company.

Page 4 of 8 July 23, 2020 What’s the Opportunity at WMH? Huge Value Unlocking Opportunity by Listing WMH’s US Business in the US Here in the US, investors are lapping up companies who are operating in the industry of online gambling and online sport betting. The recent listing of DraftKings, Inc. (DKNG) in May 2020, saw its price surge from the initial listing day closing of $19.35 to $37.55 within a span of nearly 3 months, providing a return of 94.1% vs the broader index Nasdaq’s return of 23.7%. Likewise, GAN Ltd. (GAN), moved its listing from London to the Nasdaq exchange and has seen its price pop up by 92.6% since listing, outperforming the Nasdaq, which provided a return of 21.2% for the same period under consideration for GAN. Based on our calculation, betting on the euphoric interest of US based investors in online gambling/sports betting players, we estimate that WMH can be valued in the range of $1.35bn to $1.45bn (based on the GBP/USD exchange rate of 1.27), providing tremendous upside for shareholders (see page 7 for SOTP valuation tables). Ability to Assert its Strong Brand Value in the US: William Hill Plc is a London based bookmaker, trades on the London Stock Exchange and is one of the largest bookmakers in the UK. Little is it know that when it comes to WMH’S business in the US, the company is also a major player, even bigger than known names like FanDuel and DraftKings. As mentioned before, WMH holds a 25% national market share, making the company America’s #1 sportsbook. We believe that the management or the help of an activist shareholder can do a much better job of branding themselves in the different states Now’s the Time to Exploit the Exponential Growth Opportunity In May 2018, the US supreme court ruled the 1992 Professional and Amateur Sports Protection Act (PASPA) as unconstitutional, opening other hitherto untapped markets for legal sports gambling apart Las Vegas. Ever since the ruling was made, the total value of bets legally wagered has crossed ~$22bn in the US, providing more than $1bn for those states that have legalized sports betting. This lucrative growth opportunity has also attracted established European betting companies to enter US markets via either mergers or organically setting shops in the US. For example, GVC Holdings Plc (GVC LN) entering a partnership with MGM and Flutter Entertainment Plc (FLTR LN) acquiring FanDuel. Even WMH has partnered with Eldorado Resorts, Inc. (ERI) to expand its geographical footprint in the US. Strategic Partnership Gives First Mover Advantage in Expanding its Scale in the US In January 2019, William Hill US (WMH’s US Subsidiary) received regulatory approval to partnership with Eldorado Resorts, making WMH the exclusive partner in the provision of betting services which would be conducted through all the retail and online channels attached to the current or future Eldorado properties. This exclusivity agreement stands for 25-years. With 21 properties across the US, the partnership provided access to 11 states in the US. Furthermore, Eldorado Resorts (ERI) made an announcement of completion of a successful merger with Caesars Entertainment (CZR) on July 20, 2020, making the new entity (Caesars Entertainment) the largest casino and entertainment company in the US. With 21 properties of Eldorado across 11 states and Caesars’ 37 properties across 14 states, WMH US is bound to benefit with the extended geographical reach. Recent Share Sale and VAT Recovery Provides Liquidity Cushion WMH has guided that it expects to reclaim a £200m VAT recovery (£50m more than guided previously) from the UK’s HM revenues and Customs (HMRC) authority after they won a legal battle over tax paid on FOBTs. A ruling found that the gambling players where overcharged VAT on their machines for over eight years. Additionally, management successfully negotiated a covenant holiday over its debt schedule. Furthermore, its successfully raised £224m from a 20% share placing on June 17, 2020 as WMH builds the necessary firepower for its US expansion as we expect to see an acceleration in the number of new US states legalising sports betting/online casino. Leverage Position of WMH: The net leverage position before the VAT refund and share issue stood at 1.6x (Debt – £896.7m; Cash – £459.4m; FY19 EBITDA - £271m). In WMH’s latest trading update in June 16, 2020, they announced the repayment of a £203m bond, an expected windfall of around £200m from the VAT Refund and its recent share issuance worth £224m. This now brings their net leverage fall to 0.06x (Debt - £693.7m; Cash - £680.4m; FY19 EBITDA - £271m).

Page 5 of 8 July 23, 2020 Hint of Potential Takeover as Competitor Buys and Increases Stake in 2020 The billionaire brothers Fred and Peter Done, founders of UK based bookmaker Betfred (private company), recently declared on March 13, 2020 that they bought a 3.03% stake in rival WMH. As per WMH’s more recent shareholding declaration, the Done brothers have increased their stake to 5.16%, becoming the second largest shareholder. Reportedly, an offer was put forth by Betfred to acquire the 2,300 betting shops of WMH in the UK, which was turned down in 2019. Why Would Betfred Buy? Betfred is looking to expand into the US after 14 states legalised sports betting. WMH already has a major presence in the US with its sportsbooks in 9 of the 14 states that enjoy legalised sports betting. WMH’s US business handled $2.9bn worth of wagers in 2019 or at least 25% of all sports betting wagers in the US went through WMH. With Betfred having ~1,500 betting shops in its portfolio, if they were to acquire WMH’s betting shops, they could rival GVC Holdings (GVC, owner of the partypoker brand), which has approximately 3,000 betting shops thanks to acquiring the Ladbrokes and Coral brands for £3.2bn in March 2018. Based on our calculation with an expected FY21E EBITDA of around £75m and applying an assumed takeover premium of around 40% at peer trading multiple of 8.9x, WMH’s Retail Division’s takeover value comes to around £952m. So that shareholders do not get ripped off in a deal that undervalues a segment or the business on a whole, we believe an activist with certain expertise in this situation can guide for the best deal possible. Scenario Analysis Highlighting Expected Market Cap of Segments if Separated Today

Scenario (i) - All Net debt transferred to UK Division Online and Retail Particulars WMH LN (Combined) The US Division (The UK Division) Assumed EV of Segments based on FY19 EBITDA contribution (£m) £1,652 £1,520 £132 Last Reported Net Debt and assumed allocation (£m) £437.3 £437.3 - Current Market Cap (£m) £1,215 Resultant Market Cap Post Separation if initiated today (£m) £1,083 £132 Source: The Edge® Spinoff Research Department, Company filings;

Scenario (ii) - All Net debt distributed in the ratio of FY19 Revenue Contribution (UK Division 92%, US 8%) Online and Retail Particulars WMH LN (Combined) The US Division (The UK Division) Assumed EV of Segments based on FY19 EBITDA contribution (£m) £1,652 £1,520 £132 Last Reported Net Debt and assumed allocation (£m) £437.3 £402 £35 Current Market Cap (£m) £1,215 Resultant Market Cap Post Separation if initiated today (£m) £1,118 £97

Source: The Edge® Spinoff Research Department, Company filings;

The Edge View (WMH LN): With US investors lapping up gambling stocks especially with credible online presence, we see the separation and listing of WMH’s US business on the US market as a major value unlocking step for its shareholders. We feel the market currently is not valuing the stock for its potential of the US business. The performing Online business could lead to further upside and could successfully offset the expectedly grim performance from the Retail business. For the right activist, we believe this is a favorable opportunity to enter into a market-leading company in the US as investors could reap the rewards from the lowering of the discount with UK peers, and the benefit from the separation and listing of its US business.

Page 6 of 8 July 23, 2020 Valuation & Peer Matrix – William Hill Plc (WMH LN) Valuation Matrix Our Base case target price is 153p for WMH LN in its current combined SOTP Valuation of WMH LN (Potential Spinoff scenario) form impling a potential upside of +31%. Considering the peers better profitability, we have taken a discount of around 10% to peer average (in £ m except per share data) multiple of 9.3x. FY21E EBITDA 220

On a SOTP basis, we anticipate the US division to unlock tremendous FY21E average peer EV/EBITDA multiple (25% discount to Peers) 6.7x value if WMH separates it and lists it on US bourses. We have used the EV/Sales multiple to value the US division as the division is in the growth Value of UK Segment 1,465 phase with major expansion Capex eating into the margins of the firm. FY21E Sales 123 We see potential upside of +79% given our SOTP target price of 209p.

FY21E average peer EV/Revenue multiple 9.2x Relative Valuation of WMH LN (in £ m except per share data) Value of US Segment 1,133 FY21E EBITDA 241 Total enterprise value of WMH LN 2,598 FY21E blended peer EV/EBITDA multiple 8.4x Cash and cash equivalents 459 Total enterprise value of WMH LN 2,238 Debt 897 Add: Cash and cash equivalents 459 Less: debt 897 Total equity value of WMH LN 2,160

Total equity value 2,015 O/s shares 10.3 Shares outstanding (m) 10.3 Target Price (in p) 209 Target value per share (in p) 153 Current Price (in p) 116.7 Current share price (in p) 116.7 Upside/Downside 31.1% Upside/Downside 79.1%

Peer comparison matrix for the UK (Online and Retail – Ex US) Segment EV/EBITDA Company Ticker EV £m FY20E FY21E GVC Holdings Plc GVC LN 6,486 9.8x 7.4x Gamesys Group Plc GYS LN 1,461 8.2x 7.5x Flutter Entertainment Plc FLTR LN 18,296 18.7x 14.7x 888 Holdings Plc 888 LN 571 7.4x 7.1x Rank Group Plc RNK LN 869 6.7x 7.7x UK Segment 1,511 10.9x 6.9x Peer Avg. 10.2x 8.9x Sources: The Edge® Spinoff Research Department, Company filings Peer comparison matrix for the US Segment EV/Sales Company Ticker EV m FY20E FY21E Penn National Gaming, Inc. PENN $11,453 3.7x 2.4x Churchill Downs, Inc. CHDN $6,797 6.8x 4.6x DraftKings Plc DKNG $12,947 25.9x 20.7x US Segment £131 10.1x 6.2x Peer Avg. 12.1x 9.2x Sources: The Edge® Spinoff Research Department, Company filings

Page 7 of 8 July 23, 2020 Key Links & Summary

Latest Financials Investor Relations Client Portal

https://www.williamhillplc.com/investors/ William Hill Plc (WMH LN) Relations Team Contact: Louise Turner-Smith Filed: Feb 26, 2020 NA Tel: +44 (0)20 7612 3000 2019 Financial Results Email: [email protected] Combined Target Price SOTP Target Price

WMH LN: 153p WMH LN: 209p

Potential Upside Potential Upside

WMH LN: +31% WMH LN: +79%

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