One FTSE 250 Listed Stock Under the Investors’ Radar – 888 Holdings

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 199.88

• Solid base for Growth: 888 sustained robust cash generation and ended FY21 with cash and short-term deposits of US$174.5 million. Moreover, it reported outstanding strategic progress in FY21, such as the transformational acquisition of William Hill International, disposal of Bingo business, and launch of SI sportsbook in the US.
• Strong Fundamentals: During FY21, revenue and profit before jumped over 15% and 205%, respectively.
• Acquisitive Growth Prospects: The proposed transformational acquisition of William Hill shall nearly triple the size of 888’s business and deliver attractive returns.
• Technical Indicator: From a technical standpoint, 14-day RSI (~34.81) is in the oversold zone, while the current market price is hovering between the middle and the lower Bollinger Bands.
• Undervalued Multiples: On a forward 12-month basis, valuation metrics – Price/Earnings, Price/Cash Flow, EV/Sales, and EV/EBITDA are quite undervalued against the median of the Consumer Cyclicals sector.

Key Risks

• Regulatory Issue: 888 has highlighted regulatory and compliance headwinds, which can impact the average daily volume.
• Macroeconomic Risk: The year 2022 is expected to be the year of inflation, Central Bank tightening, and wage pressure. All these factors can hurt the corporate profits and equity markets. Moreover, the mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Financial Highlights (for the year ended 31 December 2021, as of 9 March 2022)

 (Source: Company Website)

• Top-line Growth: The total revenue jumped over 15% to a new record of US$980.1 million in FY21, supported by double-digit B2C growth in most of its growth markets.
• Balance Sheet: It reported a robust balance sheet and strong cash generation with US$174.5 million of cash and cash equivalents, excluding customer balances.
• Dividend: No dividend was declared in FY21 due to the capital requirements as part of the pending William Hill transaction.

Share Price Chart

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

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

*Peers: Marston's PLC, Rank Group PLC, Mitchells & Butlers PLC, and Ten Entertainment Group PLC.

*All selected peers are LSE-listed Companies from the Consumer Discretionary sector.

*1.00 US Dollar = 0.75867977 British Pounds.

 Conclusion

888 reported strong strategic progress, record results and thus, it is well-positioned for long-term sustainable growth.

Nevertheless, markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the revenue increase, operational achievements, solid liquidity, 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 199.88 (as of 22 March 2022, at 9:30 AM GMT), with lower double-digit upside potential based on 11.03x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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