888 Holdings PLC (LON: 888) – Performing ahead of Board expectations with increased demand for digital entertainment.

888 Holdings PLC is a FTSE 250 listed Company, which is involved in online betting and gaming business. It operates through two business lines B2B and B2C. The B2B business mainly includes Dragonfish, a platform through which it monetises its brands and establishes an online gaming presence. Since its foundation in 1997, 888 Holdings has been at the forefront of the online gaming industry and leveraging its proprietary technology to serve an online gaming experience.

In August 2021, 888 expects to unveil its interim results for FY21.

 (Source: Company Presentation)

Growth Prospects and Risk Assessment

888 Holdings has a secure proprietary and highly scalable platform, which underpins competitive advantages. It has a full product suite across the four major online gaming verticals with B2B and B2C capabilities. During FY20, the Company enhanced its focus on customer protection and gained market share in key regulated markets. It has strong operational margins, underlying trading momentum and a solid financial position to support the growth potential. It is encouraged by the accelerated consumer demand across geographic markets and product verticals during Covid-19 pandemic.

The global online gaming market is worth US$74.5 billion in revenue in 2021, and it is projected to reach US$117.4 billion by 2025, which shall create substantial opportunities for the Company. 

However, increasing incidents of cyber-attacks can put data security at risk. Moreover, any unfavourable change in regulatory regime can impact the Group’s modalities and offerings. Also, the disruption associated with the Covid-19 pandemic can lead to cancellation of sport events, impact consumer spending, and have a prolonged effect on general economic conditions. Such business risk can also affect the Group’s liquidity to pursue the growth trajectory, while the Company’s acquisitions might fail to deliver the expected synergies and create acquisition risk. 

Now we will analyse some key fundamental and shareholders statistics of 888 Holdings PLC. 

Recent Regulatory Updates

1 April 2021: With effect from 1 April 2021, Limor Ganot appointed as a member of the Audit Committee and Remuneration Committee.

18 March 2021: The Board of 888 recommended payment of final dividend per share of 10.40 cents. Therefore, the total dividend for FY20 stood at 18.00 cents per share. On 20 May 2021, the payment of the final dividend is subject to approval with a payment date of 24 May 2021. The share were considered ex-dividend on 25 March 2021.

Financial and Operational Highlights (for the three months ended 31 March 2021, as on 28 April 2021)

 (Source: Company Website)

• During Q1 FY21, the performance remained ahead of the board expectations with favourable exchange rate movements and strong momentum across the business.
• Driven by long-term positive customer acquisition trends, product-leadership strategy, and continued expansion in regulated markets, the Company registered 56% year-on-year revenue growth in Q1 FY21.
• The Company also deployed an in-house sports betting platform to deliver most sports volumes.
• During Q1 FY21, there was an 18% increase in funded active players and 27% growth in average daily first-time depositors.
• Robust balance sheet was maintained with strong cash generation.

Financial Highlights for the year ended 31 December 2020 (as on 18 March 2021)

(Source: Company Website)

• During FY20, the Group revenue surged 52% against FY19, while the adjusted EBITDA margin stood at 18.3% (FY19: 16.4%).
• Profit before tax for FY20 was US$26.7 million (FY19: US$45.3 million), while the adjusted basic earnings per share stood 27.3 cents (FY19: 13.5 cents).
• The Group continued to have a strong balance sheet with US$190 million in cash and cash equivalents at the end of the year.
• Operationally, the Group continued investment in New Jersey and scaled up the platform in the US.
• Overall, the Board remained confident to deliver revenue growth in FY21.

Financial Ratios (FY2020)

Share Price Performance Analysis

 (Source: Refinitiv, Thomson Reuters)

On 10 May 2021, at 9:06 AM GMT, 888 Holdings PLC’s shares were trading at GBX 414.20, down by 0.72% against the previous day closing price. Stock 52-week High and Low were GBX 456.00 and GBX 129.80, respectively.

888 Holdings PLC's prices trading in a bullish trend for more than a year and added more than 500% to March 2020 low. Prices are still sustaining above an upward sloping trendline, indicating an upside direction for the stock. On a weekly chart, the momentum indicator RSI (14-period) is trading at ~77.78 levels coupled with the trend-following indicators 21-period SMA and 50-period SMA, sustaining below current market price and supporting a positive stance for the stock.

Over the last one year, 888’s stock price has yielded a return of around +196.53%, which has outperformed the FTSE 250 index with nearly +51.20% return and FTSE All-Share Travel & Leisure index with around +39.95% return.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

(Source: Refinitiv, Thomson Reuters) 

Business Outlook Scenario

888 Holdings has increased its focus on providing a safer gambling platform and delivering stronger operational and financial results with a product-leadership strategy. The ongoing marketing effectiveness is supported by artificial intelligence and data-driven investments. Moreover, the Company is well-positioned to scale up the business in the United States. Furthermore, the Company can pursue non-organic expansion opportunities with a strong balance sheet in place.

For the remainder of FY21, the performance is expected to be relatively impacted due to the impact of the reopening of retail and leisure venues across markets and impact of regulatory and compliance changes. The adjusted EBITDA for FY21 shall remain broadly consistent with the previous year, despite increased investment in the US-based B2C expansion. Also, there is an anticipated impact of US$70-100 million on revenue in FY21 due to the compliance and regulatory changes. Notwithstanding, the Board looked confident of delivering revenue growth in FY21.

In a nutshell, the Company has a positive customer reaction (towards new product suites) and strong momentum in the business to deliver continued strategic progress during 2021 and beyond.

 (Source: Company Presentation)

Considering the product leadership strategy, strong trading momentum, operational excellence, robust financial performance, favourable industry dynamics, and support from the valuation as done using the above method, we have given a “BUY” recommendation on 888 Holdings PLC at the current market price of GBX 414.20 (as on 10 May 2021 at 9:06 AM GMT) with lower double-digit upside potential based on 27.75x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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