888 Holdings PLC (LON: 888)  

888 Holdings PLC is an FTSE 250 index listed provider of online gaming entertainment and solutions. Moreover, 888 provides a range of virtual online gaming services over the Internet. It operates through two business lines - B2B and B2C.

Recent trend of dividend payments

The Company had shown a remarkable growth of around 40% in the interim dividend attributable for H1 FY21 when compared with the prior-year levels. Moreover, the Company had paid an interim dividend of 4.50 US cents per share on 13 October 2021, with an ex-dividend date of 16 September 2021.

(Source: LSE; Charts created by Kalkine Group)

Growth Prospects

• Global Leading Position: The Company had proposed the acquisition of William Hill International and achieved the worldwide leading position in online betting and gaming in key regulated markets.
• License in Germany: 888 had obtained a newly issued sport licence in Germany, which is considered as the highly regulated market. Moreover, it is aligned with the 888's strategy to achieve sustainable growth in attractive regulated markets.
• Expanding Footprints in the United States: The Company had entered the United States markets with the launch of an in-house sports betting platform known as SI Sportsbook in Colorado.

Key Risks

• Licensing Award: The uncertainty regarding the timing of any licence award within the Netherlands may adversely impact the bottom-line business of the Company.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of 888 Holdings PLC.

Shaked (Dalia) is the most significant shareholder as it holds nearly 86.28 million shares as of 30 September 2021. 

Q3 FY21 Trading Update (for three months ended 30 September 2021, as of 19 October 2021)

 (Source: Company result)

• Decent Increase in Revenue: The Company’s top-line business jumped by around 28% on a YTD basis and around 7% during Q3 FY21 when compared with the prior-year levels.
• Strong B2C Segment Performance: The Company had shown 11% growth in B2C Gaming revenue during Q3 FY21. Meanwhile, 888 had launched more than 150 new casino games, including several in-house developed games.

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 01 September 2021)

(Source: Company result)

• Strong Increase in Revenue: The Company’s revenue rose by around 39% during H1 FY21, illustrating the continued success of the Group's product-leadership strategy. Meanwhile, the revenue from regulated and taxed markets represented 75% of Group revenue
• Surge in Cash Equivalents: The cash & cash equivalents increased by around 48%, from USD 77.4 million as of 30 June 2020 to USD 114.4 million as of 30 June 2021.
• Decent Growth in Profitability: The profit before tax grew by around 14% during H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 22 November 2021, at 08:02 AM GMT, 888’s shares were trading at GBX 349.00, down by around 0.80% from the previous day closing price. Stock 52-week High and Low were GBX 494.00 and GBX 255.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside momentum in the stock price. Moreover, the 14-days RSI of ~27.81 indicates an upside potential in the stock price.

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

Business Outlook

The Company had maintained the positive business momentum shown during H1 FY21 in Q3 FY21 as well. 888 had penetrated new geographies like the United States and Germany with the recent new launches. However, the Company remained cautious regarding the tougher comparable in for Q4 FY21 as 888 achieved remarkable betting and gaming revenues during 2020. Meanwhile, 888 considered the Netherland market as an attractive medium-term opportunity and intended to apply for a local licence in the coming months.

The stock price may undergo a sizeable correction amid sluggish macro-economic indicators such as lower-than-expected UK GDP growth during Q3 FY21 and UK inflation reaching 10-years high during October 2021. Overall, 888 remained confident of achieving FY21 revenues and adjusted EBITDA to be slightly ahead of its prior expectations.

Considering the robust revenue growth during H1 FY21, decent profitability, the proposed acquisition of William Hill, interim dividend growth, penetration of new geographies, 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 349.00 (as on 22 November 2021 at 08:02 AM GMT), with lower-double digit upside potential based on 19.54x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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