888 feels the heat from UK regulator

Online betting and gaming company 888 (888) posted double-digit revenue growth in a year of value-driven M&A, but suffered a major fine from the UK Gambling Commission (UKGC) for “social responsibility and money laundering failings”.

Regulated and taxed markets such as the UK (sales up 17 per cent) and Italy (sales up 37 per cent) contributed three-quarters of revenue. Despite challenging comparatives, average monthly player numbers were up by 4 per cent and gaming revenue soared by 17.7 per cent to $815mn (£620mn) on the back of a strong casino performance.

The American market is key, especially with concerns around the impact of tougher regulations in the UK and Europe. A UK government white paper is due this year and could herald major regulatory changes to online gambling. US revenue was up by 6 per cent to $22mn.

The transformational £2.2bn acquisition of the non-US assets of William Hill, which will triple the business’s size, should still complete in the second quarter (Q2). A consequence is that no final dividend will be paid by the company this time around due to capital requirements for the deal. The $50mn sale of 888’s bingo business is also expected in Q2, letting the company focus on its core offering.

The £9.4mn UKGC fine is clearly concerning. The failures include 888 not identifying players at risk of harm and having insufficient source of funds checks. The fine was included in provisions, and a payment is expected this month.

Numis analysts forecast EPS of 27.0¢ and then 30.1¢ for the next two financial years. We will wait for the white paper and any knock-on effects of the UKGC’s move. Hold.

Last IC View: Hold, 420p, 1 Sep 2021