888 Holdings PLC  

888 Holdings PLC (LON: 888) is an FTSE 250 index listed provider of online gaming entertainment and solutions.

In March 2022, 888 expects to release its FY21 results.

Rationale for Valuation – BUY at GBX 305.00

• Government Support: Rishi Sunak pledged additional GBP 1-billion package to support the Covid-19 hospitality sector.
• Strategic Sale of Bingo Business: On 15 December 2021, 888 announced the disposal of B2C and B2B bingo businesses to Saphalata Holdings Ltd, for the consideration of US$50 million on a cash-free debt-free basis.
• Betting License: On 1 December 2021, 888 announced that it has secured a sports betting licence from the Virginia Lottery.
• Technical Indicator: From a technical standpoint, the MACD line has given a bullish crossover against the signal line, supporting a positive price potential.
• Undervalued Multiples: On a forward 12-month basis, valuation metrics – EV/Sales, EV/EBITDA, and Price/Earnings are quite undervalued against the average of the Consumer Cyclicals industry.

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.
• 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%.

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.
• Product Launches: 888 had launched more than 150 new casino games, including several in-house developed games.

Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

888 has made strong progress towards completing William Hill International's acquisition, which is now expected to be completed in Q1 FY22. 888 needs to raise nearly £500 million of gross proceeds by issuing new equity, prior to the acquisition. Nevertheless, the acquisition will strengthen its worldwide leading online betting and gaming position in key regulated markets. The stock made a 52-week High and Low of GBX 494.00 and GBX 279.80, respectively.

Based on the decent profitability, 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 closing market price of GBX 305.00 (as on 24 December 2021), with lower double-digit upside potential based on 16.87x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

RM PLC

RM PLC (LON: RM.) is a FTSE All-Share listed Company that supplies technology and resources to the education sector.

Investment Rationale – SPECULATIVE BUY at GBX 199.50

• Stronger Footprint: RM has reduced net debt and showed a healthier state of the balance sheet to build a path for sustainable growth. Moreover, RM's digital and automation investment programmes shall yield operational and financial benefits.
• Financial Growth: Despite continued Covid-19 disruption, there was significant growth in top-line and bottom-line items during H1 FY21.
• Valuation Multiples: On a forward 12-month basis, key valuation metrics (EV/Sales, Price/Earnings, and EV/EBITDA) of the RM PLC are undervalued as compared to the median of the Technology sector.
• Technical Indicator: From a technical standpoint, the stock price is hovering close to the lower standard deviation of the Bolling Bands, reflecting an oversold position.

Risk Assessments

• Pandemic Impact: As the Omicron variant of coronavirus is emerging rapidly in the UK, it can continue to disrupt the education sector with school closures.
• Supply Chain Disruption: The sustained high demand for IT products and consumer electronics categories has created logistic delays, which can impact the Company’s growth strategy.

Recent News

Full-Year Trading Update: On 9 December 2021, RM affirmed that it continued to trade in line with market expectations, and net debt is expected to be below £20 million (as at 30 November 2021).

Interim Results (for the six months ended 31 May 2021, as on 6 July 2021)

 (Source: Company Website)

• Financial Growth: RM reported financial growth as revenue jumped 21% year-on-year in H1 FY21 on the back of strong trading in RM Resources.
• Solid Balance Sheet: Its pension position turned from a deficit to a surplus, following the improvement in net debt position.
• Dividend Resumption: The interim dividend for H1 FY21 was recommended as 1.7 pence (H1 FY20: Nil)

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

The outlook seems promising on the back of improved education fundamentals, expected benefits from digital programmes, improved net debt position, and solid trading momentum.

Notwithstanding, RM is a penny stock with a small market capitalization, and thus, it is exposed to market uncertainties. Therefore, it is recommended that investors should examine their risk-return profile before punting on this high risk and high reward asset. The stock made a 52-week high and low of GBX 260.00 and GBX 192.00, respectively.

Based on the strong financial performance, reduction in net debt, the reopening of UK schools, the surplus of pension position, supported by the valuation conducted above, we have given a "SPECULATIVE BUY" recommendation on RM PLC at the closing market price of GBX 199.50 (as on 24 December 2021), with lower double-digit upside potential based on 15.57x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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

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