Insider: directors stake £1 million backing recoveries

Support for debt-laden William Hill business Evoke (LSE:EVOK) surged at the end of last week after three directors disclosed confidence-boosting share purchases worth £681,000.

The FTSE All-Share stock closed 11% higher on Friday as investors followed the lead of chief executive Per Widerström, who backed up his results-day comments on the company’s turnaround prospects by committing £495,000 on 900,000 shares.

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Chair Jon Mendelsohn doubled his stake through a £138,000 purchase and non-executive director Limor Ganot bought shares for the first time through an investment valued at £48,000.

Their dealings took place at near to 55p before Friday’s surge to 61.45p in a session that saw trading volumes more than double the usual level.

Evoke had been 85p prior to a profit warning last month, when it revealed that free bets on Cheltenham and other marketing costs more than outweighed a return to revenues growth during the second quarter.

Interim results on Thursday confirmed that earnings fell by 26% to £115.5 million on an adjusted basis, with revenues across the half year down 2% to £862 million.

However, Widerström forecast a significant improvement in profitability in the second half due to the impact of its £30 million cost saving programme and a more effective marketing strategy that has seen an increased focus on core customers.

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Widerström said management had taken “bold, decisive actions” to both instigate a turnaround in short-term trading and to deliver on ambitions to build a “more profitable, more sustainable, and more cash generative business”.

The company, which used to be known as 888 Holdings, is targeting an improvement in adjusted margin from 13.4% in last week’s results to at least 20% in the 2025 financial year. Its medium-term ambitions also include 5-9% revenue growth per year.

Widerström added: “We are completely transforming this business. Whilst the scale of change is significant, it is necessary for us to deliver mid and long-term profitable growth and value creation.”

The £1.95 billion acquisition of William Hill’s non-US operations was announced in 2021, but higher interest rates increased the debt burden and impacted Evoke’s ability to reinvest excess cash flow into accelerating growth.

Net debt closed the half year at £1.73 billion, equivalent to 6.4 times last year’s underlying earnings. However, this ratio should fall to less than six times on the prospect of an improved second half as Evoke targets a level below 3.5x by the end of 2026.

The earliest maturity of this debt is the £11 million due in 2026, with a recent refinancing helping to extend the deadline on £400 million of borrowings by two years to 2030. 

Broker Peel Hunt said after the July profit warning: “We continue to believe that Evoke can trade its way out from under the debt mountain.”

It lowered its earnings forecasts for this year and next but regards the share price as compelling based on a price target of 110p. Deutsche Numis had a figure of 90p after Thursday’s results.

Dowlais Group (LSE:DWL) shares also recovered lost ground after the top two directors of the automotive industry supplier disclosed investments totalling £300,000.

The purchases by chief executive Liam Butterworth and finance boss Roberto Fioroni took place at prices below 60p after results on Tuesday initially led to a fresh fall for shares.

The GKN Automotive business closed the week at 64.5p, which compares with 117p on the day of April 2023’s demerger from Melrose Industries (LSE:MRO).

Tuesday’s half-year figures revealed a 32% drop in profits to £95 million after ePowertrain revenues were impacted by high levels of production volatility among electric vehicle makers.

The challenging conditions are expected to continue in the second half, meaning Dowlais now sees a mid to high single-digit adjusted revenue decline for 2024 and an adjusted operating margin between 6% and 7% at constant currency.

The ePowertrain issues offset outperformance by the company’s Driveline business, China joint venture and Powder Metallurgy business, which total more than 75% of group revenues.

Butterworth said: “In this challenging market environment, we focused on what we can control and took several decisive actions to mitigate the impact from lower volume as well as unlock value from our portfolio.”

These initiatives included a “relentless focus” on cost control, as well as last week’s  announcement of a strategic review of Powder Metallurgy.

Peel Hunt notes that Powder Metallurgy’s March carrying value stood at £884 million, which is roughly in line with the group’s market value. The broker, which has a price target of 120p, described an exit at or near this level as “potentially transformational”.