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Gaming duties and research costs hit 888 profits

The betting company has modelled for coronavirus disruption
April 15, 2020

New gaming duties meant a 35 per cent fall in 888’s (888) cash profits (Ebitda) last year, while the gambling operator warned that it could breach a loan covenant under a worst case scenario modelled for coronavirus trading disruption.

IC TIP: Hold at 133p

888’s ebitda dropped from $129m (£103.1m) in 2018 to $84.2m, a decline largely prompted by $25.6m in new duties. Duties rose 37 per cent to $95.5m, which the company attributed to its revenue growth, along with an increased duty rate in the UK. 888’s profitability was also cut by a 9 per cent rise in research and development costs to $35.6m, largely attributable to investment in its 2019 acquisition of BetBright, a sporting platform. 

Sports betting is crucial to the business model, accounting for 16 per cent of 888’s 2019 turnover. The company has modelled for a range of scenarios, and its doomsday forecast, which assumes a “very substantial decline” in non-sports betting alongside no sports turnover until April 2021, could push the company beyond its finance cost to trading profit ratio covenant in its $50m revolving credit facility. 

Peel Hunt analysts forecast full-year 2020 adjusted pre-tax profits and earnings per share of $53.4m and 12.5ȼ respectively, rising to $62m and 14.4ȼ in 2021.

888 (888)    
ORD PRICE:133pMARKET VALUE:£ 612m
TOUCH:131-133p12-MONTH HIGH:183pLOW: 68p
DIVIDEND YIELD:3.6%PE RATIO:15
NET ASSET VALUE:45ȼ*NET CASH:$47m**
Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
201546232.58.315.5
201652159.214.419.4
201754218.83.515.5
201854110926.312.2
201956045.311.36.0
% change+4-58-57-51
Ex-div:23 Apr   
Payment:22 May   
£1=$1.25 *Includes intangible assets of $240.4m, or 65ȼ a share **Includes lease liabilities of $34.8m