ii view: 888 Holdings shares surge

This online gambling firm is benefiting from the return of sport, adding to strong poker demand. 

First-half trading update to 23 June 2020

• Average daily revenue 34% higher
• Adjusted profit for the full year significantly ahead of prior expectations

Chief executive Itai Pazner said:

“Our global teams have demonstrated fantastic flexibility and commitment as they have had to adapt to new ways of working over recent months. I am pleased to report that we are now in the early phases of enabling some of our teams to return to our offices whilst continuing to ensure that we prioritise their well-being and follow all relevant guidelines.

“888 is well positioned to continue to benefit from a potential long-term shift towards online services that we have seen accelerate across several consumer industries during the Covid-19 pandemic. We remain vigilant about our responsibilities to protect customers and prevent gambling-related harm. We continue to take a number of proactive measures to communicate with players about safe gambling and invest in our products and technology to ensure that we always deliver a fun and, above all, safe place to play."

ii round-up:

Online gambling company 888 Holdings (LSE:888) today pointed to significantly better than previously expected full-year profits, buoyed by increased customers, the return of sporting events and strong poker gaming. 

Growing new customers in 2019, a better than anticipated response to the return of sport following the pandemic lockdown, and an in-demand poker product, all played their part. 

888 shares rose by more than 15% in early UK trading and are now up by around 5% for the year-to-date. Shares of rivals and operators of high street outlets William Hill (LSE:WMH) and Rank Group (LSE:RNK) are down by 33% and 44% respectively during 2020. 

Average daily revenue for 888, which was only recently promoted to the FTSE 250 index, rose by 34%. June sports revenue is running ahead of June 2019, likely aided by the return of football following the coronavirus induced break. 

Adjusted profit or Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) for the full year 2019 fell 20% to $85.6 million, hit by additional gaming duties from expansion and currency headwinds. 

Today’s update comes ahead of pending first-half results. However, despite uplifted profit expectations, management still remains mindful of possible second half challenges, given the potential for a period of prolonged global economic uncertainty and its likely impact on discretionary consumer spending. 

ii view:

Headquartered in Gibraltar, 888 holds gaming licenses across the UK, Spain, Italy, Denmark, Ireland, Romania, Nevada, New Jersey, Delaware and Gibraltar itself. It 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.

For investors, accompanying second half cautionary outlook comments cannot be ignored, while an estimated forward price/earnings ratio (PE) in line with both the three-and 10-year averages, suggest the shares are not obviously cheap. But a diversity of online products and a growing number of customers suggest that the company’s long-term attraction remains undiminished. 

Positives: 

• Added more than one million new customers over the last financial year
• A diversity of products and geographical locations

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