Do these major changes make William Hill plc and Mitie Group plc 'screaming buys'?
Today has seen significant news for FTSE 350 companies William Hill(LSE: WMH) and Mitie(LSE: MTO). In the case of the former, it has confirmed press speculation that it's in talks regarding a merger with US-listed Amaya. Meanwhile, Mitie has announced a change in CEO. So do these pieces of news mean William Hill and Mitie are worth buying right now?
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William Hill
In recent days there has been speculation that William Hill has been in merger talks. Today's confirmation concerns the potential for a merger of equals with Amaya. William Hill's management believes that this could be a means of accelerating its strategy diversify through an increase in digital and international business. It believes the merger would be consistent with its overall strategic objectives and could create an international leader in online sports betting, poker and casino.
Clearly, there's no certainty that an agreement will be reached. However, the gaming industry is enduring a period of consolidation as competition has increased in recent years. Therefore, the better diversified companies with greater scale and lower cost bases are likely to have a competitive advantage over their peers.
William Hill has been the subject of considerable rumour and speculation in recent months. Notably, there was an attempted takeover of it by Rank and 888. However, this was a hostile takeover, whereas the merger with Amaya is something William Hill's management is in favour of at the present time. So it could be argued there's a better chance that it will proceed.
Looking ahead, William Hill is forecast to grow its earnings by 10% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.3, which indicates that even if the merger doesn't come off, it could be a strong long-term performer.
Mitie
Mitie has today announced that CEO Ruby McGregor-Smith will step down on 12 December. She will be replaced by former Cable and Wireless Communications CEO Phil Bentley. Despite having doubled sales and profit during her 14-year tenure, Mitie has struggled of late in a tough support services sector. Its shares are down by 38% since the start of the year and things could get worse before they get better.
That's because Mitie is due to report a decline in earnings of 16% in the current year. Furthermore, a new CEO could seek fresh capital to develop the company's growth strategy, cut the dividend or change the strategy in order to make Mitie a more streamlined and profitable firm. All of these possibilities could cause investor sentiment to come under pressure in the short run.
However, Mitie remains a high quality business that's forecast to grow its bottom line by 10% in the next financial year. Alongside a price-to-earnings (P/E) ratio of 8.9, this indicates that now could be a good time to buy it.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Mitie Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
