Business Overview
888 Holdings Plc (LON: 888) is an online gaming operator. The company provides virtual online gaming and entertainment solutions over the internet. 888 offers a range of online casino, bingo, poker, sport, social and mobile gaming, and skill games to end-users and to its business partners through its business to business unit, Dragonfish. The company’s operations are differentiated in two operating segments: B2C (Business to Customer) and B2B (Business to Business). The company’s Business to Customer (B2C) business operates in online games like poker, bingo and emerging offering and casino and games. The company’s Business to Business (B2B) business offers gaming services under brand name Dragonfish. The company’s Dragonfish brand provides its business partners services like business analytics, CRM (customer relationship management), SEO (search engine optimization), offline/online marketing, management of affiliates, e-payments, operations, software, technology and marketing services. Other B2B brands includesecretslots.com, 8 Ball Games, Iceland Bingo, BingoHollywood.com, Moon Bingo, Costa Casino, World Series of Poker (WSOP), Delaware lottery and Foxy Bingo.The company also provides services like online advertising, payment services and customer support.

The current Non-Executive Chairman of the Board is Brian Mattingley, was appointed in March 2016. Itai Pazner holds the responsibilities of the Chief Executive Officer and was appointed on January 2019. Aviad Kobrine holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

 

Post-Closing Trading Update (as on 7^th January 2020)

On 7th January 2020, 888 Holdings announced a post-closing trading update for the full year ending 31st December 2019. In the second half of the financial year, the company stated all-time monthly record in revenue in December and is confident to reach the set targets for its adjusted EBITDA. The growth in revenue was driven by a solid performance from Orbit casino in multiple markets in which the company operates and also supported by growth in Sport. The company faced many challenges in Poker, though were satisfied with the roll out of the first phase of Poker 8, new poker platform and made decent progress in the second half of the financial year. The company is looking forward to adding multiple new features before it rolls out the final phase in the year 2020. In the United Kingdom, the company focused on entertaining recreational customers, which resulted in an increase in the revenue for the period. The company’s Italian operations performed decently in the second half of the financial year. The improved performance was driven by the success of Casinoin the region. In the H1 of the financial year 2019, the company’s revenue from its Spanish business declined due to the launch of shared poker liquidity networks between France, Portugal and Spain by its competitors. The company launched a liquidity network between Spain and Portugal in July and was encouraged by its performance. The company also made progress in other regulated markets like Romania and Sweden with a year-on-year increase. Reflecting the company’s focus on strategic performance, the company had witnessed a year-on-year increase in the revenue from the regulated markets for the year.

B2C Deposits Trend


(Source: Company’s Website)
 
The company has been working well and has shown resilience against external challenges. The company witnessed positive trends from the regulated markets. The double-digit progress in the regulated continental Europe market helped the company to offset the decline in the UK business and the UK business showed improved performance in the second half of the FY2019.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, USD, million)


(Source: Interim Report, Company’s Website)
 
In the first half of the financial year 2019, driven by an increase in revenue from B2C, casino, Sport and Bingo revenue for the period, the company’s revenue before VAT accrual release surged by 2 per cent to USD 277.3 million as against USD 273.2 million in H1 FY2018. In the first half of the financial year 2019, the adjusted EBITDA stood at USD 41.8 million versus an adjusted EBITDA of USD 52.4 million in H1 FY2018, while the adjusted EBITDA margin was at 15.1 per cent for the period. Due to an increase in it’s the operating expenses for the period, the company’s operating profit before exceptional items, share benefit charge and VAT accrual release, stood at USD 29.6 million in H1 FY2019 versus an operating profit before exceptional items share benefit charge and VAT accrual release of USD 42.3 million in H1 FY2018. The company’s reported operating profit stood at USD 24.7 million in the first half of the financial year 2019 versus a reported operating profit of USD 60 million in H1 FY2018. The adjusted PBT (Profit before tax) for H1 FY2019 stood at USD 27.1 million versus an adjusted PBT (Profit before tax) of USD 42.5 million in the first half of the financial year 2018. The reported PBT (Profit before tax) for the first half of the financial year 2019 stood at USD 22.2 million versus a reported PBT (Profit before tax) of USD 60.1 million in H1 FY2018. The company’s PAT (Profit after tax) attributable to the shareholders was reported at USD 19.7 million in the first half of the financial year 2019 versus a PAT (Profit after tax) attributable to the shareholders of USD 55.4 million in H1 FY2018. The adjusted basic earnings per share stood at 6.7 cents in the first half of the financial year 2019 versus adjusted basic earnings per share of 10.5 cents in the first half of the financial year 2018. The basic earnings per share stood at 5.4 cents in the first half of the financial year 2019 versus basic earnings per share of 15.4 cents in the first half of the financial year 2018. The diluted earnings per share stood at 5.3 cents in the first half of the financial year 2019 versus diluted earnings per share of 15 cents in the first half of the financial year 2018. The interim dividend stood at 3 cents in the first half of the financial year 2019 versus 4.2 cents in H1 FY2018.

Financial Ratios
 
 

The reported EBITDA margin in the first half of the Financial Year 2019 declined by 4.1 per cent to 16.8 per cent from 20.9 per cent reported last year for the same period. The reported operating margin in the first half of the Financial Year 2019 declined significantly by 12.2 per cent to 8.9 per cent from 21.1 per cent reported last year for the same period. The reported Pre-tax margin in H1 FY2019 was down by 13.2 per cent to 8 per cent against 21.2 per cent reported last year for the same period, though was above the industry median. The company’s Pre-tax margin for the period was above industry Median of 4.5 per cent for the period. Net margin reported was 7.1 per cent for the first half of the financial year 2019. The company’s Net margin for the period was above industry Median of 4.5 per cent for the period. Return on equity for the first half of the Financial year 2019 stood at 12.6 per cent, which was higher than the industry median of 3.2 per cent. On the liquidity front, 888 Holdings Plc’s current ratio in H1 FY2019 was lower than the industry median of 0.74, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the 888 HoldingsPlc’s was 0.39x, which was lower as compared to the industry median of 0.88x, reflecting that the company is less leveraged as compared to its peers.

Share Price Performance

Daily Chart as at January-13-20, before the market close (Source: Thomson Reuters)

On January 13, 2020, at the time of writing (before the market close, at 9:38 AM GMT), 888 HoldingsPlc shares were trading at GBX 154.00, down by 1.09 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 183.30/GBX 126.70. At the time of writing, the share was trading 16.03 per cent lower than the 52w High and 21.55 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 1,557,806.40, 30 days – 748,048.83 and 90 days – 710,499.39. The average traded volume for 5 days was up by 108.25 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.84, reflecting lower volatility as equated to the benchmark index. The outstanding market capitalisation was around £573.79 million, with a dividend yield of 5.13 per cent.The shares of the company have delivered a positive return of 0.24 per cent in the last nine months.

Valuation Methodology
Method 1: Price to Earnings Value Approach (NTM)

 

To compare 888 Holdings Plc withits peers, Price/Earnings multiple has been used. The peers are Flutter Entertainment Plc (NTM Price/Earnings was 27.58), Kambi Group Plc (NTM Price/Earnings was 20.14), Best Of The Best Plc (NTM Price/Earnings was 19.07), On the Beach Group Plc (NTM Price/Earnings was 17.02) and Raketech Group Holdings Plc (NTM Price/Earnings was 3.69). The average of Price/Earnings (NTM) of the company’s peers was 17.50x (approx.)

Method 2: Price to Cash Flow Approach (NTM)

 

To compare 888 HoldingsPlc with its peers, Price/Cash Flow multiple has been used. The peers are Sportech Plc (NTM Price/Cash Flow was 14.96), Kambi Group Plc (NTM Price/Cash Flow was 12.65), GVC Holdings Plc (NTM Price/Cash Flow was 10.09), William Hill Plc(NTM Price/Cash Flow was 7.55) and Kindred Group Plc (NTM Price/Cash Flow was 6.02). The Average of Price/Cash Flow (NTM) of the company’s peers was 10.25x (approx.)

Growth and Risk Assessments

The company continue to make developments in the technology and with necessary regulatory changes being made will help in the growth of the company as well as of the online gambling industry. The company is looking forward to expanding its operations through acquisitions and also organically with the development of new products. The company’s Poker 8 platform is helping the company to overcome the challenges that it faces in the Poker business. The company would be impacted due to the uncertainty created due to Brexit, as it would result in customer loss and negatively impact the financial performance of the company. Acquisitions to match rapid transformation may increase integration risks and expected synergies may not be achieved.

Conclusion

In the second half of the financial year 2019, the company had shown improvement in the revenue and adjusted EBITDA. The revenue from all the businesses has been improved in the second half.

The group made several strategic signs of progress, like the acquisition of sports betting platform BetBright, Costa Bingo a portfolio of Bingo brands, and successful launch in two European regulated markets like Sweden and Portugal.

The company has a unique platform to report continued growth in the dynamic global online gaming industry and as a diversified operator that owns its own technology. It continues to base its success on its unique technology-edge and diversification across products and markets.

Over the course of 5 years (FY13 - FY18), the company’s net income surged from USD 400.5 million in FY13 to USD 540.6 million in FY18. Compounded annual growth rate (CAGR) stood at 6.18 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 149.20 (as on 13^th January 2020, before the market close at 10:52 AM GMT) with low double-digit upside potential based on 17.50x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 10.25x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 

*All forecasted figures and peer information have been taken from the Thomson Reuters.Currency exchange rate taken for 1 USD = 0.77034 GBP.

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