William Hill plc (LON:WMH) is on the front foot after Berenberg upgraded the stock, saying it “struggles to justify” the current share price after losing almost 50% of its value in 2018.
Berenberg raised its recommendation on the stock to ‘buy’ from ‘hold’ but cut its target price to 250p from 280p.
READ: Shares in UK bookmakers rocked by potential US ban on online betting
“2018 was an intense year for William Hill (WMH), with the UK digital business still struggling to gain back market share due to the implementation of new regulatory measures, a monster write-off of the UK retail network, the acquisition of Mr Green and several initiatives undertaken to address the nascent US sportsbetting market,” the broker said.
Following a sharp fall in the company's market value, Berenberg thinks it is "now ripe to be a takeover target".
While it sees significant upside potential to its target price, Berenberg still prefers other stocks in the gaming sector as it wants to see William Hill’s UK business return to growth and its US initiatives gather pace.
GVC Holdings PLC (LON:GVC) remains Berenberg's top pick.
READ: William Hill picks up 4.7% of shares in Mr Green & Co
William Hill plans to expand in the US through sports betting agreements with 11 casinos in Mississippi and a casino partner in West Virginia.
It has also agreed to buy Swedish online bookmaker Mr Green, in a deal that will give it an EU base after Brexit.
In the core UK retail business, Berenberg expects a “substantial contraction” in 2019 due to new, lower limits for betting on gaming machines.
“This will bring retail earnings down to an extent that cannot be compensated for by the Mr Green consolidation in 2019.”
Berenberg said the pace of the integration of Mr Green must be monitored, along with changes to US regulation.
The broker’s estimates for 2019-20 are below consensus forecasts as it expects higher start-up losses in the US than other analysts.
In late morning trading, William Hill shares rose 2.7% to 175.25p.