888 Holdings PLC

888 Holdings PLC (LON: 888) is a FTSE 250 listed Company, which is involved in the online betting and gaming business. It operates through two business lines B2B and B2C.

On 1 September 2021, 888 expects to unveil its interim results for the six months ended 30 June 2021. 

Investment Rationale – SELL at GBX 410.40

• 888’s stock has yielded a stellar return of over 105% in the past year, giving a lucrative opportunity to book profit.
• The average daily revenues in the UK remained 20% lower in H1 FY21 versus H1 FY20.
• The resurgence in Covid-19 cases due to the delta variant can impact the Company’s operations and delay its pipeline.
• From a technical standpoint, 14-day RSI (~62.85) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow valuation multiples are overvalued against the median of the Hotels & Entertainment Services industry.

Key Risks

• The macroeconomic conditions are uncertain with a subdued bond market, modest rise in initial jobless claims, and stalled labour market.
• Any unfavourable change in regulatory regime can impact the Group’s modalities and offerings.
• The Covid-19 led disruption can lead to the cancellation of sports events, impact consumer spending, and have a prolonged effect on general economic conditions.

Recent News

Partnership: On 24 June 2021, 888 Holdings announced a partnership with Authentic Brands Group, to develop Sports Illustrated online sports betting and iGaming products.

Q2 FY21 Trading Update (for the three months ended 30 June 2021, as on 07 July 2021)

 (Source: Company Website)

• With further expansion across major markets, revenue grew by 10% year-on-year in Q2 FY21.
• The B2C revenue surged by 11% year-on-year, and the Company witnessed long-term positive customer acquisition trends.
• The revenues from Poker and Bingo shown underperformance against the previous year (Q2 FY20).
• Robust balance sheet was maintained with strong cash generation.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

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

Conclusion 

888's stock seems overstretched at the current level and can face some corrections due to the Delta variant COVID-19 spread, and cautious tone of the financial markets. As the US coronavirus hospitalizations hit an 8-month high with over 100,000 patients, it can derail the economic recovery and delay reopening all travel & leisure venues. Therefore, it is prudent to book the exceptional notional gains at the current level and reinvest profit plus gains when due corrections are being done. The stock made a 52-week High and Low of GBX 456.00 and GBX 177.40, respectively.

Based on the rising Covid-19 cases, overstretched technical stance, increasing input costs, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on 888 Holdings PLC at the current price of GBX 410.40 (as on 31 August 2021, at 7:15 PM GMT).

Cerillion PLC

Cerillion PLC (LON: CER) provides software related to charging and customer relationship management. It mainly serves the telecommunications market and has 90 customers across 44 countries.

Investment Rationale – SELL at GBX 845.00

• Federal Reserve Chair Jerome Powell unveiled that the central bank could begin reducing its monthly bond purchases in FY21.
• The strengthening of the US Dollar can lead to an exchange rate headwind.
• CER’s stock has yielded a remarkable return of over 165%, giving an attractive opportunity to book profit.
• From a technical standpoint, 14-day RSI (~56.12) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, and Price/Book valuation multiples are overvalued against the median of the Software and IT Services sector.

Key Risks

• The equity market sentiments might remain subdued in the short-term with ongoing concerns over inflation and the coronavirus pandemic.
• The Covid-19 led challenges can impact new customer acquisition.
• The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.

Financial Highlights (for the six months ended 31 March 2021, as on 17 May 2021)

 (Source: Company Website)

• In H1 FY21, CER reported 148% increase for new orders to £23.6 million (FY20: £9.5 million).
• Due to major contract wins and scale of implementations, revenue jumped 26% year-on-year in H1 FY21.
• The new business pipeline was 9% higher in H1 FY21 at £130.8 million versus H1 FY20.
• CER paid 20% higher interim dividend of 2.10 pence (H1 FY20: 1.75 pence).

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

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

Conclusion

Cerillion’s stock seems overstretched at the current level and face some corrections due to the Delta variant COVID-19 spread, continuously rising US Dollar, China's plans to regulate the internet sector, and cautious tone of the financial markets. The lockdown easing can also subside the inflated volume in the technology sector. Hence, it is prudent to liquidate the position at the current levels. The stock made a 52-week high and low of GBX 920.00 and GBX 285.00, respectively.

Based on the increased debt, gloomy outlook, overstretched technical stance, rising input costs, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Cerillion PLC at the current price of GBX 845.00 (as on 31 August 2021, at 7:05 AM GMT).

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

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

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

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