888 Holdings PLC  

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

On 9 March 2022, 888 expects to release its FY21 results.

Rationale for Valuation – BUY at GBX 223.66

• Better Platform for Growth: 888 sustained robust cash generation and ended FY21 with cash & cash equivalents and net of customer balances of US$147 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.
• Operational Achievement: It also reported positive initial progress after the launch of SI Sportsbook in Colorado. Moreover, the transformational acquisition of William Hill International is expected to be completed in Q2 2022
• Technical Indicator: From a technical standpoint, 14-day RSI (~24.15) is in the oversold zone, while 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

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• 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.

FY21 Post-Close Trading Update (for the twelve months ended 31 December 2021, as of 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.
• 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 (FY21) (Illustrative)

*Peers: Rank Group PLC, Mitchells & Butlers PLC, Hollywood Bowl Group PLC, and Nightcap PLC.

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

*1.00 US Dollar = 0.74658854 British Pounds. 

Conclusion 

Following the significant top-line and bottom-line growth in H1 FY21, 888 updated that it has reported an overall jump of 14% in total revenue in FY21. 888 also announced that the disposal of B2C and B2B bingo businesses to Saphalata Holdings Ltd, will bolster liquidity and enhance focus on core business. The stock made a 52-week High and Low of GBX 494.00 and GBX 220.00, respectively.

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 223.66 (as of 24 February 2022, at 10:15 AM GMT), with lower double-digit upside potential based on 12.53x Price/NTM Earnings (approx.) on FY21E 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. 

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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