William Hill Plc (LON:WMH) (OTCBB:WIMHY) (OTCBB:WIMHF) is one of the largest gambling companies in the world, with a market value of nearly GBP 3 billion. However, the company has been under intense pressure over the last few quarters following the introduction of the new tax laws on gambling companies in the UK. The new laws will see gambling companies pay 15% income tax on revenue generated from gambling activity in the UK, as compared to the past when gambling companies could only pay taxes in countries where their operations/headquarters were based.
For instance, most companies with registered headquarters in Isle of Man, or the British Virgin Islands and Gibraltar were paying about 1% taxes on income reported according to the tax laws of the various countries. However, that has now changed and William Hill already reported tax costs of about GBP 23 million in the most recent quarter. The company has since issued a profit warning for the current quarter citing the impact of the new tax laws on its bottom line.
In addition, the year 2015 also lacked the busy sporting season witnessed last year as there was no world cup. As such, it is pretty obvious why investors should have expected a decline in profits and revenues this year. This fact also highlights the cyclical nature of revenues for gambling companies, especially those involved in sport betting. You can learn more about sports betting here.
Why you don’t need to get worried by WMH’s recent profit warning
When a company issues a profit warning, this triggers a genuine cause for concern amongst investors, especially with regard to incremental growth.
However, William Hill along with many gambling companies with operations in the UK is currently experiencing a unique situation in their lifetime. The fact that gambling companies started paying the 15% tax this year will definitely affect the financials in the current campaign.
However, this should not come as a surprise because the changes were announced late last year, and thus investors should have been prepared for a significant slowdown in profitability. In addition, last year was also one of the busiest in terms of sports betting following the 2014 world cup event in Brazil.
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