Interactive Investor

ii view: 888 Holdings keeps falling after half-year update

23rd June 2022 11:21

Keith Bowman from interactive investor

Shares for this FTSE 250 gaming company are down over 40% during 2022. We assess prospects. 

First-half trading update to 30 June

ii round-up:

Online betting and gaming company 888 Holdings (LSE:888) today reported first-half trading broadly in line with management’s own expectations. 

The FTSE 250 company, which is in the process of buying William Hill’s non-US operations, expects revenues of between £330 million and £335 million for the six months to the end of June. That’s down from over £400 million achieved in the first half of 2021. 

Shares for 888 Holdings fell by more than 3% in UK trading having come into this latest update down over 40% year-to-date. Shares for larger gaming rivals Flutter Entertainment (LSE:FLTR) and Entain (LSE:ENT) are down by 28% and 22% respectively. The FTSE All-World index has fallen by over a fifth.

Growth in certain European markets had been offset by additional safer gambling measures as well its temporary exit from the Netherlands as it obtains a gaming license following law changes. 

Revenues for its purchase of the William Hill business, expected to complete early July,  are tipped to come in at between £620 million and £630 million for the first half to late June. A reopening of high street outlets following the pandemic had been offset by safer UK online gambling measures. 

888 agreed to buy William Hill's non-US assets from US gaming giant Caesars Entertainment (NASDAQ:CZR) last year in a deal valued at between £1.95 billion and £2.05 billion. 

In conjunction with the deal, 888 also announced that it will market debt of just over £1 billion along with entering over £750 million worth of loan facilities. 

ii view:

Started in 1997, today 888 operates across the two divisions of Business to Consumer (B2C) under its 888 brands and Business to Business (B2B) through its Dragonfish division. The B2B business provides partners a platform from which to build an online gaming presence. The B2C division makes most of its sales. The acquisition of William Hill’s non-US operations from Caesar will add around 1,400 UK betting shops to its business along with some online brands. 

For investors, stricter gambling rules both in the UK and in places such as Germany are not to be ignored. A previous fine of £9.4 million by the UK Gambling Commission for social responsibility and money laundering failures is also worth remembering. So is the debt required to buy William Hill, along with the recent halting of the dividend payment in order to help fund the acquisition. 

More favourably, William Hill gives 888 a famous brand name and expands its exposure in sports betting. Its diversity of brands and operations is enlarged, while broader consolidation across the gaming industry may continue at some point in the future. On balance, a high degree of caution remains sensible given an increasingly tough outlook for consumers and heightened regulations. Successfully bedding-in William Hill will go some way to rebuilding confidence in the investment story.  

Positives: 

  • A diversity of products and geographical locations
  • Previous industry consolidation 

Negatives:

  • Increased government gaming regulation 
  • Cost-of-living crisis for consumers 

The average rating of stock market analysts:

Buy  

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