888 Holdings PLC (LON: 888)  

888 Holdings PLC 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 303.15

• Global Leading Position: 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.
• License in Germany: 888 had obtained a newly issued sport license 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.
• Technical Indicator: From a technical standpoint, 14-day RSI (~18.57) is in the oversold position, while the stock price is close to the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis, valuation metrics – EV/Sales, and EV/EBITDA are quite undervalued against 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.
• 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.

Recent News

Betting License: On 1 December 2021, 888 announced that it has secured a sports betting licence from the Virginia Lottery. It would strengthen the Company’s foothold in the US online sports betting and iGaming market

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.

Share Price Chart

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

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

Conclusion 

The Company has maintained positive business momentum in FY21 so far. 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 for Q4 FY21 as 888 achieved great betting and gaming revenues during 2020. Meanwhile, 888 considered the Netherland market an attractive medium-term opportunity and intended to apply for a local licence in the coming months. The stock made a 52-week High and Low of GBX 494.00 and GBX 265.00, respectively.

Based on 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 303.15 (as on 3 December 2021, at 8:05 AM GMT) with lower double-digit upside potential based on 17.02x 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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