ii view: 888 Holdings sees both profit and share price fall

Shares for this major gaming company are down over 45% in 2022. We assess prospects. 

First-half results to 30 June

• Revenue down 13% to £332.1 million
• Pre-tax profit down 66% to £14.4 million
• No interim dividend

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ii round-up:

Online betting and gaming company 888 Holdings (LSE:888) today reported falls in both sales and profits as more stringent safer gambling policies hit and investment in its US business dragged. 

Pre-tax profit for the first half to the end of June fell 66% to £14.4 million. Sales fell 13% to £332.1 million, broadly in line with management’s prior estimate. 

888 Holding shares fell by more than 10% in UK trading having come into this latest update down around 46%. Shares for larger rivals Flutter Entertainment (LSE:FLTR) and Entain (LSE:ENT) are down around 10% and 15% respectively.   

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888 Holdings completed its purchase of William Hill’s non-US operations just after these latest results completed. If allowing for the acquisition and previous sale of its Bingo business, revenues fell 1% to £943 million during the period with adjusted profit up 26% to £142.3 million. 

Accompanying management outlook comments pointed to expected revenue in the second half of this year being in line with revenue in the first half of 2022.

Group gross debt stands at £1.8 billion, with maturities ranging from five to six years. Cash interest costs are expected to be around £65 million over the second half and between £130 million to 140 million in the full year 2023. 

A capital markets day, to update investors further on strategy, is scheduled for November. 

ii view:

Headquartered in Gibraltar, and listed in London, 888 Holdings operates across 15 offices around the world and employs over 12,000 people globally. The acquisition of William Hill’s non-US operations in 2021 from Caesar adds around 1,400 UK betting shops to its business along with some online brands.

For investors, an increasingly tough backdrop for consumers given a cost-of-living crisis following its acquisition of William Hill’s non-US operations needs to be considered. Previous fines from the UK Gambling Commission should not be forgotten, with more stringent safer gambling policies and the delayed UK Gambling Act Review White Paper also worth remembering. Gross debt of £1.8 billion compares to a stock market value of around £600 million. In addition, the dividend payment is suspended in order to help fund its major acquisition. 

More favourably, the purchase of William Hill operations gives it a famous brand name and expands its exposure in sports betting. Its diversity of brands and operations is also enlarged. On balance, and while the purchase of William Hill offers long-term potential, investors may wish to wait for evidence of such growth before adding to any existing share holdings.  

Positives: 

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

Negatives:

• Tighter safer gaming policies required
• Cost-of-living crisis for consumers 

The average rating of stock market analysts:

Buy