On a constant currency basis, 888’s (888) top line rose 9 per cent in the first half of 2017. Although ultimately dampened by negative exchange movements, this resolute performance was eclipsed by last week’s announcement that the UK Gambling Commission (UKGC) fined the group more than £7.8m for "serious failings in its handling of vulnerable customers”. On the bright side – for 888 shareholders at least - this ends a period of uncertainty, which started when the regulator’s review into the company was announced in May. Plus, the group has kept hold of its operating licence.
Two exceptional items account for the pre-tax loss. A one-off charge of $5.5m represents the £4.25m the UKGC has ordered 888 to direct to a cause that will "invest in measures to tackle gambling-related harm”. A further £3.5m, not recorded in these figures, must be paid to more than 7,000 self-excluded customers who were still able to deposit money into accounts over a period of 13 months, gambling a huge total of £50.6m.
The other cost of $45.3m (£34.7m) relates to potential VAT payments for the provision of gaming services in Germany before 2015. 888 concedes that other services could result in a further cash outflow of up to $18.5m.
Elsewhere, “increasing recognition of [online business] 888Sport as a premium sports betting brand” led to a reported sales bump of 35 per cent to $33.7m, or 45 per cent at constant currencies. The casino business also performed well, with an underlying sales boost of 11 per cent attributed to growth on mobile devices and increased content. Bingo sales were down 3 per cent on an underlying basis, but declined 15 per cent in reported terms, owing to sterling’s weakness and a “highly competitive UK bingo market”.
Regionally, there was good momentum in Italy, where a strong contribution from sports betting led to revenue growth of 40 per cent. In Spain, 888’s second-largest individual market, sales rose 23 per cent thanks to successful marketing campaigns and a “comprehensive” product base. The company exited those markets where there were no “sustainable future opportunities”, including Australia, Poland, Slovenia and the Czech Republic.
Analysts at Numis forecast pre-tax profit of $68.8m and basic EPS of 16.4¢ this year, up from $63.1m and 15.5¢ in 2016.
| 888 HOLDINGS (888) | ||||
| ORD PRICE: | 252p | MARKET VALUE: | £906m | |
| TOUCH: | 251.8-252p | 12-MONTH HIGH: | 302p | LOW: 196p |
| DIVIDEND YIELD*: | 6% | PE RATIO: | 99 | |
| NET ASSET VALUE: | 26¢** | NET CASH: | $153m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2016 | 262 | 27.8 | 6.1 | 3.8 |
| 2017 | 270 | -17.3 | -5.0 | 4.0 |
| % change | +3 | - | - | +5 |
| Ex-div: | 14 Sep | |||
| Payment: | 11 Nov | |||
| £1=$1.29. *Includes special dividend of 10.5¢ a share paid in May 2017**Includes intangible assets of $160m, or 44¢ a share | ||||
