ii view: 888 Holdings posts record annual results

9th March 2022 15:29

A purchase of William Hill operations is pending and new markets such as Germany entered. We assess prospects.

Full-year results to 31 December 2021

Revenue up 15% to $980 million
Adjusted profit (EBITDA) up 6% to $165 million
Cash and cash equivalents up 18% to $174.5 million
No final dividend payment (2020: 10.4 US cents per share)

Chief executive Itai Pazner said:

"2021 was a very successful year for 888 as we continued to position the Group to become a global leader in online betting and gaming. It was another record year from a financial perspective, and we have truly transformed the scale of the business over the past two years.

“Given this strong financial and operational performance, the Board remains confident that, with 888's advanced technology, products and diversification across markets, the Group is well-positioned to deliver long-term sustainable growth for all its stakeholders into the future."

ii round-up:

Online betting and gaming company 888 Holdings (LSE:888) today reported record adjusted profits, although declared no final dividend payment as it saved cash given its pending takeover of William Hill operations.

Adjusted profit rose 6% to $165 million (£125 million) as revenues across its core markets of the UK, Italy and Spain rose by almost a fifth. In September it offered £2.2 billion to buy the non-us operations of William Hill from Caesars Entertainment (NASDAQ:CZR), including its 1,400 William Hill branded UK betting outlets.

888 shares drifted marginally lower in UK trading having more than doubled since pandemic market lows in March 2020. Shares for former DraftKing's (NASDAQ:DKNG) bid target Entain (LSE:ENT) and owner of Ladbrokes have gained by over 300% in that time. Betfair owner Flutter Entertainment (LSE:FLTR) is up by around a third.

Accompanying 888 management comments pointed to improved momentum since the end of 2021, with average daily revenues throughout January and February up mid-single digits relative to the fourth quarter of 2021. Tough comparatives following 2020 pandemic lockdowns and reduced leisure possibilities saw fourth quarter 2021 revenues down by 16%.

The purchase of William Hill operations, which is expected to complete in the second quarter of 2022, will almost triple the size of 888’s business and is expected to offer significant overlap savings.

Other 888 developments during 2021 included the sale of its bingo business, the launch of 888sport in Germany and the award of a gaming license in Ontario, Canada.

Group cash held rose by almost a fifth year-over-year to $174.5 million (£132.6 million).

ii view:

888 Holdings operates across the two divisions of Business to Consumer (B2C) under its 888 brands and Business to Business (B2B) through its Dragonfish division providing partners a platform, from which to build an online gaming presence and monetise their own brands. The B2C division makes most of its sales, with gaming products by far its biggest sales generator at 83% of 2021 revenues and betting at 13%. The B2B division makes up the balance of 4%.

Geographically, the UK accounts for its biggest slug of sales at just under 40% during this latest financial year. Italy as a sole nation came next at 12%, with Europe, Middle East, and Africa (EMEA) making up for around one third; the US and Americas 13%; and the rest of the world at close to 2%.

For investors, a recent fine of £9.4 million by the UK Gambling Commission for social responsibility and money laundering failures cannot be ignored. It followed another such fine in 2017. Broader industry concerns for responsible gambling and increased government regulation also warrant consideration. A single dividend payment only during 2021 of 4.5 US cents per share also contrasts with a total payment during 2020 of 18 US cents per share, when including special dividends.

More favourably, the purchase of William Hill operations gives it a famous brand name and expands its exposure in sports betting. It is also expected to enhance adjusted net earnings per share during its first full year following completion.

888 shares have been a poor performer since the sector peaked toward the end of September, shortly after the company announced plans to acquire William Hill. Over the past six months, 888 has lost 51% of its value, Entain 27% and Flutter 41%, as excitement around industry consolidation has died down. It's impossible to say whether this is the bottom of the market, and a consensus analyst estimate of fair value of over £5 per share looks aggressive given market conditions. There is reason to be optimistic about longer-term prospects, but cautious in the near term.

Positives:

A diversity of products and geographical locations
Net cash position as of 31 December 2021 of $174.5 million

Negatives:

Government concerns re gambling addiction
Gaming taxes an easy target for financially stretched Covid-19 hit governments

The average rating of stock market analysts:

Strong buy

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