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888 Holdings lockdown boost, but future depends on the US

It must grow in the US to offset any regulatory risk in its European market.
888 Holdings lockdown boost, but future depends on the US
  • Total adjusted Ebitda up 39 per cent to $97.4m
  • US only grew revenue by 7 per cent

Betting company 888 Holdings (888) benefited from lockdown boredom. With nothing else to do for most of the of the year, people used their phones to bet on sports and play casino games. However, the easing of lockdowns will make it difficult to maintain the past year’s momentum, while the spectre of tightening UK gambling regulation looms.

Total revenue for the period was up 38 per cent, compared with the first half last year. Adjusted cash profits also jumped 39 per cent, which was impressive given that its marketing expenses rose 70 per cent to $170m. The UK and Italy delivered 57 per cent and 82 per cent growth, respectively. In Italy, it had 11 per cent more new customers – a thank you to successful Italian football is probably in order.

A concern is that the EMEA (Europe, Middle East, Africa) segment – excluding the UK and Italy – grew only 9 per cent to £166m. 888 said the growth in Romania (138 per cent), Ireland (126 per cent) and Portugal (47 per cent) was “partially offset by the impact of the new regulatory regime in Germany”. The changing regulation there has resulted in litigation costs from fighting prohibition orders. The company will also have to contend with deposit limits, maximum wagers and advertising restrictions on its online slots and poker games. The gambling group's legal and regulatory provisions increased from $19.3m to $21.9m over the period.

This could be a precursor for what could happen in the UK, which is currently its largest market, generating $223m revenue during the period. The UK Gambling Commission is bringing in measures for players on online slots games, including limits on spin speeds and the ban of features speeding up play or celebrating wins. The new measures are required to be fully implemented by online operators by 31 October 2021.

To offset tightening European regulations, 888 needs to focus on the US market, which is currently deregulating sports betting. US revenue increased just 7 per cent to $10.7m, however it will be hoping to speed this up given that it has just signed a long-term partnership with Sports Illustrated.

Peel Hunt is bullish about the Sports Illustrated deal and “the perennial potential of value creating M&A” and has estimated EPS at 29p for the end of the year before rising to 30p in 2022. However, it would be best to wait for the outcome of the UK regulation and the Sports Illustrated impact in the US – uncertainties linger. Hold.

Last IC View: Hold, 351p, 18 March 2021

888 HOLDINGS (888)   
ORD PRICE:420pMARKET VALUE:£ 1.56bn
TOUCH:419.6-420.2p12-MONTH HIGH:456pLOW: 177p
DIVIDEND YIELD:3.3%PE RATIO:132
NET ASSET VALUE:43.3¢*NET CASH:$160m
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
202037950.912.43.2
202152857.913.74.5
% change+39+14+10+41
Ex-div:16 Sept   
Payment:13 Oct   
£1=$1.38 *Includes intangible assets of $167m, or 45¢ a share.