888 Holdings PLC

888 Holdings PLC (LON: 888) is a FTSE 250 listed online gaming solutions provider. It was founded in 1997, and presently, offers a range of virtual gaming services.

Pre-Close Trading Update (as on 26 June 2020)

In the pre-closing trading update, the Company affirmed that the adjusted EBITDA for the financial year 2020 to be ahead of market expectations, driven by the decent trading during the year to date period. The Group further stated that the trading has been in line since the last Q1 update (as on 24th March 2020), with some moderation in revenue growth in recent weeks.

On a year to date basis, the average daily revenue has been 34% higher than the last year. The decent growth is also supported by the acquisitions undertaken during H2 FY19. The Company is witnessing decent growth in Poker, while the global teams have shown commitment and flexibility to adapt to the transition in business. Despite the decent trading movement, the Group stays mindful of possible headwinds in the second half of the financial year 2020, including the potential for a period of prolonged global economic uncertainty that could impact discretionary spending by consumers.

Share Price Performance


1-Year Chart as at July-13-2020, before the market close (Source: Refinitiv, Thomson Reuters)

888 Holdings PLC’s shares were trading at GBX 184.90 on 13 July 2020 (before the market close at 11:35 AM GMT+1), down by 1.65% against the last day closing price. Stock 52 week High and Low were GBX 192.60 and GBX 68.40, respectively.

At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level, representing overbought position.

Valuation Methodology
 


Key Risks
Due to heavy reliance on online services, the Company’s performance is exposed to cyber-attacks, unauthorised access, and date misusage.There is a potential regulatory risk to online gambling services. Moreover, the Company can face license-related issues after Brexit. Also, robust financial controls are imperative to sustain during the pandemic. The Company’s profits can also be impacted negatively due to foreign exchange rate fluctuations.

Conclusion
In FY2019, the Company reported a decent hike in revenue growth; however, the bottom-line items of the income statement suffered, which reflected in the decline of earnings per share. Further, the Company is prepared to tap the opportunities falling with structure shift in demand towards online services, while it is vigilant to protect customers from gambling-related harms.

From a technical perspective, RSI is indicating a bearish setup for the stock, and it is not financially viable to take a fresh position currently. Also, some other key technical indicator on the short-term timeframe reversed from the overbought zone and is currently on the verge of reversal which could bring the share price in a downward trend. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to COVID-19 pandemic. The Company’s Price/Cash Flow, EV/EBITDA and Price/Earnings multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Presently, the Group is trading near the 52-week high, raising doubts at the upside potential at the current price level.

Considering the risk factors and overstretched valuation multiples, we have given a “Sell” recommendation at the current price of GBX 190.80 (as on 13 July 2020, before the market close at 8:03 AM GMT+1).

Georgia Healthcare Group PLC – Volatile After Share Exchange with GCAP

Georgia Healthcare Group PLC (LON: GHG) is a FTSE All-Share listed healthcare service provider, which offers an extensive range of inpatient and outpatient services. It operates through five lines of businesses, namely Hospitals, Clinics, Diagnostics, Pharmacy and Distribution, and Medical Insurance.

Recent News
8 July 2020: The Company announced that it had reached agreement on the terms with Georgia Capital PLC (GCAP) for a recommended share exchange offer for the entire issued share capital which was not already owned by GCAP. Following the agreement, GCAP affirmed the admission of 6,109,267 New GCAP Shares for trading on the London Stock Exchange's main market. Previously on 7 July 2020, the GCAP had received valid acceptance for the offer pertinent to 23.19% (representing 30,546,535 shares) of the existing share capital of GHG shares. After the cancellation and admission to trading, GHG will be regarded as a Private Company. The settlement of consideration to accepting GHG shareholders would be done within 14 days of the date of receipt of further acceptances, or to be despatched either on or before 22 July 2020.

Trading Update (for the three-month ended 31 March 2020, as on 19 May 2020)

The Company reported a 10.6% year-on-year (y-o-y) growth in Q1 FY20 to GEL 260.1 million (Q1 FY19: GEL 235.2 million). During the first two months of the year 2020, the strong performance was delivered due to core business strategies and recent strategic investments. However, Covid-19 disruption changed business priorities. During the first quarter, organic revenue growth in Pharmacy and Distribution business was partially offset by lower Hospital business revenues. The Group’s adjusted EPS (Earnings Per Share) and adjusted net profit stood at GEL 0.07 million and GEL 14.3 million, respectively in Q1 FY20. Regarding the liquidity, the Company bolstered the financial flexibility in May by securing USD 25 million loan facility. Moreover, the Group had cancelled the final dividend of FY19, while reducing certain capital expenditure for FY20. As at 31 March 2020, the Group had GEL 68.2 million in cash and bank deposits, reflecting 147% y-o-y increment.

Share Price Performance

 1-Year Daily Chart as on 13 July 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

GHG’s shares were trading at GBX 95.40 on 13 July 2020 (before the market close at 10.35 AM GMT+1), down by 2.58% against the last day closing price. Stock 52 week High is GBX 257.14 and Low is GBX 60.00, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price. Moreover, the shares were trading below the short-term support level of 10-day simple moving average prices, which reflects a downward trend in the stock.

Valuation Methodology


 *Peer: Georgia Capital PLC, BSD Crown Limited, Cake Box Holdings PLC, and Total Produce PLC.
*1 GEL = 0.259138 GBP
 
Key Risks
Covid-19 disruption has changed the priorities for the Company. The Hospital business faced significant pressure due to travel restrictions, and thus, overall hospital admissions declined by 12% in the Q1 FY20. Also, the Clinical business has been facing lower patient footfall.

Conclusion
During the financial quarter of 2020, the Group had shown a tremendous decline in bottom-line financial items. Moreover, the stock is quite overvalued from the Price/Earnings multiple’s perspective, when compared with the Food & Drug Retailing industry. It is projected that cancellation of trading and listing of the stock will take place no earlier than 5 August 2020 (8.00 AM London time).

Based on the risks factors as stated above, we have given a “Sell” recommendation at the current price of GBX 95.40 (as on 13 July 2020before the market close at 10.35 AM GMT+1).
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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