888 Holdings PLC  

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

Rationale for Valuation – BUY at GBX 262.20

• Strong Financial Position: 888 sustained robust cash generation and ended FY21 with cash & cash equivalents and net of customer balances of US$147 million.
• Growth Drivers: 888 reported an outstanding strategic progress in FY21, such as transformational acquisition of William Hill International, disposal of Bingo business and launch of SI sportsbook in the US.
• Technical Indicator: From a technical standpoint, 14-day RSI (~25.31) is in the oversold zone, which the current market price has gone below the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis, valuation metrics – Price/Earnings, EV/Sales, and EV/EBITDA are quite undervalued against the median of the Consumer Cyclicals sector.

Key Risks

• Macroeconomic Uncertainty: The ongoing economic instability with Omicron coronavirus variant, potential tightening of monetary policy, subdued consumer confidence, and currency fluctuations can also impact business performance.
• Licensing Award: The uncertainty regarding the timing of any licence award within the Netherlands may adversely impact the bottom-line business of the Company.

FY21 Post Close Trading Update (for the 12 months ended 31 December 2021, as on 18 January 2022)

 (Source: Company result)

• Increase in Revenue: The Company’s top-line business jumped by around 14% year-on-year in FY21, reflecting the benefit of continued expansion in regulated markets.
• Operational Achievement: It also reported a positive initial progress after the launch of SI Sportsbook in Colorado.
• Acquisition Update: The acquisition of William Hill International is expected to complete in Q2 FY22.

Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion 

888 will release a combined circular for the Acquisition and Capital Raise during Q2 2022. The acquisition is expected to be occur during Q2 FY22. Previously, 888 also announced the disposal of B2C and B2B bingo businesses to Saphalata Holdings Ltd, to bolster liquidity and enhance focus on core business. 888 needs to raise nearly £500 million of gross proceeds by issuing new equity, prior to the William Hill’s acquisition. The stock made a 52-week High and Low of GBX 494.00 and GBX 262.20, respectively. 

Based on the revenue increase, 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 262.20 (as on 18 January 2022, at 8:15 AM GMT), with lower double-digit upside potential based on 14.55x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Anglo Asian Mining PLC

Anglo Asian Mining PLC (LON: AAZ) is a FTSE AIM All-Share quoted Company, which is engaged in the production of gold, copper, and silver in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan.

Investment Rationale – SPECULATIVE BUY at GBX 113.77

• Robust Financial Position: As the free cash flow for FY21 remained within the guidance of US$10 million to US$15 million, it ended FY21 with a better liquidity in hand.
• Growth Driver: AAZ has a resilient production base, while it is developing new opportunities in Azerbaijan and abroad.
• Technical Indicator: From a technical standpoint, the current market price is trading significantly above the 20-day EMA (GBX 111.16), reflecting a bullish price momentum.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, and Price/Earnings valuation multiples of AAZ are quite undervalued against the median of the Basic Materials sector.

Risk Assessments

• Copper Price Downturn: The possible debt crisis with the default of China's real estate developer, Evergrande Group, can keep the copper prices under pressure in the short term, as metals are widely used in construction activity.
• Gold Price Volatility: The sluggishness in gold prices due to US dollar strengthening, rising Omicron variant related concerns, and uncertain demand outlook can impact the Company’s financial condition.

Q4 F21 Production and Operations review (for the three months ended 31 December 2021, as on 13 January 2022)

 (Source: Company Website)

• Quarterly Production: During FY21, AAZ produced 64,610 of gold equivalent ounces (GEOs) against 67,249 GEOs in FY20.
• Liquidity: As on 31 December 2021, cash balance was stood at US$37.5 million (30 September 2021: US$30.9 million).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

AAZ has sustained a steady rate of production in FY21 so far. It shall be presented with compelling growth opportunities on the back of high-quality Zafar deposit, strengthened copper inventories, and three exciting new contract areas. On 2 December 2021, Anglo Asian affirmed that it has received access to the Zangilan district of Azerbaijan from the government. Therefore, it plans to begin exploration and processing in the future.

Notwithstanding, its nature of being a penny stock involves high risk, and thus, investors are suggested to invest cautiously. The stock made a 52 week High and Low of GBX 181.80 and GBX 104.00, respectively.

Based on the solid production in FY21, decent gold price environment, sound profitability, industry leading dividend returns, we have given a “SPECULATIVE BUY” recommendation on Anglo Asian Mining PLC at the current market price of GBX 113.77 (as on 18 January 2022, at 8:05 AM GMT), with lower double-digit upside potential based on 12.73x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

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

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

*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).

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