Interactive Investor

Insider: a big boardroom bet and massive sale at FTSE 100 hot stock 

24th April 2023 09:16

by Graeme Evans from interactive investor

Share on

Once latest results were published, directors at this small-cap firm wasted little time splashing out on hundreds of thousands of shares. And there's a huge seller at a famous FTSE 100 company.

bet gamble chart 600

Three directors of 888 Holdings (LSE:888) have staked £240,000 of their own money backing the new William Hill owner to bounce back from a challenging start to the year.

The boardroom buyers included chairman Jon Mendelsohn, who has taken temporary  day-to-day charge since January’s disclosure of failings in the company’s anti-money laundering processes for VIP customers in the Middle East.

Finance boss Yariv Dafna, who has delayed his departure date while the search for a new CEO takes place, also increased his holding. The third and largest buyer was gaming entrepreneur Ori Shaked, who is a non-executive director appointed by 888’s largest shareholder.

Their recent purchases took place at prices between 68.4p and 78.4p after in-line annual results on 14 April, when 888 reiterated 2025 targets for at least £2 billion of revenues and more than 35p of adjusted earnings per share compared with 15.1p in 2022.

It wants to improve the leverage ratio to below 3.5 times, from a year-end 5.6 times after net debt rose to £1.7 billion due to the acquisition of William Hill’s non-US operations.

That deal was announced in 2021, but higher interest rates have increased the debt burden and impacted 888’s ability to reinvest excess cash flow into accelerating growth.

Performance across key online markets has moderated since the Covid bounce but Mendelsohn reported “very positive” progress on the William Hill integration after a material increase in synergy targets.

The £1.95 billion acquisition created a business with 12,000 staff and brands including William Hill, 888casino and Sweden’s Mr Green, as well as SI Sportsbook run in a US partnership with Authentic Brands Group.

Shares remain 25% off where they were before January’s disclosure of Middle East compliance issues and exit of long-time chief executive Itai Pazner. Potential major changes in UK regulation under an imminent review of the Gambling Act also hang over the stock.

In March, the Gambling Commission fined William Hill £19 million relating to historic player safety failings which took place prior to the acquisition.

The company’s safer gambling initiatives and new onboarding procedures in the Middle East are among factors meaning revenues this year will be down by a mid-single digit percentage.

However a first quarter trading update alongside the results met expectations, including a target for a significant rise in adjusted earnings through a margin of at least 20%.

Investec Securities believes the strong start to 2023 bodes well, adding that the deleveraging process should be quick as long as 888 keeps pace with City forecasts.

Analyst Roberta Ciaccia said: “If operations continue to perform in line with expectations also in Q2, we think we would be at a turning point in the perception of the stock.”

The bank has a price target of 190p, while Peel Hunt reiterated 150p after the results.

The broker highlighted the considerable burden of an estimated £165 million a year in interest costs, but said 70% is fixed for at least three years and that 888 has the trading cash flows and undrawn facilities to be able to pay with a comfortable margin.

Peel Hunt said: “We believe that the UK white paper will not undermine 888’s business, that growth will be restored, and that debt will start to be paid down.

“A new CEO should have an attractive re-equitisation message to take to investors. With the shares priced for failure, we reiterate our “buy” recommendation.”

Mendelsohn spent £68,400 on shares immediately after the results, while his finance boss made a purchase of £15,680 last Monday. The biggest investment was made by Shaked, who spent £155,100 the following day. The shares, which have been among the most traded on the interactive investor platform in recent days, closed last week at 78p.

The performance has been in sharp contrast to Flutter Entertainment, with the Paddy Power and FanDuel owner one of the past year’s strongest stocks in the FTSE 100 index.

Selling at the top?

Rentokil Initial (LSE:RTO) chief executive Andy Ransom pocketed £6.3 million on Friday after selling shares in the pest control company for the first time since he joined the board in 2008.

The FTSE 100-listed company said the post-tax proceeds from the disposal of just over one million shares will be used to fund a property purchase.

Ransom, who has led Rentokil since 2013, retains an interest over six million shares held directly or under vested but yet to be exercised bonus and long-term incentive awards.

The sale took place at 619p, near to the company’s 52-week high after Ransom told investors on Thursday that the integration of major US addition Terminix continued to progress in line with expectations. With organic revenues excluding acquisitions up by 6.7% in the first quarter, Ransom said the company looked to be well positioned for the rest of the year.

Friday afternoon’s disclosure of Ransom’s sale contributed to shares falling from 633p to an eventual close at 615p. However, the shares are still up 22% in under six weeks. Ransom has sold shares previously to pay income tax and National Insurance on vesting performance shares but never before as a standalone disposal.

Ransom joined Rentokil in 2008 as executive director of the global pest control business, having previously been on the management team of ICI.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox