Online gaming and betting company 888 Holdings (888) saw first quarter revenues through March 2022 fall 18% to $215 million compared with a record prior year performance.
The temporary exit from the Netherlands and a ‘heightened focus’ on safer gambling resulted in average monthly actives declining by 8% year-on year.
Gaming revenues which represent 85% of total income proved more resilient that betting, falling 14% to $191 million. On a like-for-like basis and excluding the impact from the Netherlands, gaming revenues were 8% lower.
Betting revenues fell by 42% to $24 million driven by a 28% decline in stakes, customer friendly results and increased promotional spending.
The shares have halved over the last six months on uncertainties around a rights issue to finance the acquisition of William Hill’s non-US assets and an upcoming regulatory review in the UK. Today’s update prompted a further 3% fall to 208.4p.
EASIER COMPARATIVES
Looing forward comparatives are expected to get easier while the company is preparing to launch its Sportsbook in Virginia.
Chief executive Itai Pazner commented: ‘I am pleased with the Group's progress, and we are looking forward to returning to year-over-year revenue growth in the second half of the year, as we benefit from further launches in additional US states, together with our expectation of relaunching in the Netherlands and ramping up our recent launch in Ontario.’
LESS DILUTION BUT HIGHER GEARING
The company successfully raised £163 million at a price of 230p on 7 April 2022, far less than originally anticipated to part finance the William Hill business.
While this was good news for shareholders because the amount raised was far less than the £300 million the company originally indicated, it means it is more indebted.
Berenberg analysts estimate the combined 888/William Hill business will have a net debt to EBITDA (earnings before interest, taxes, amortization and depreciation) of 4.8 times by the end of 2022.
However, the bank believes the cash-generative capabilities of the company will allow a rapid paydown of debts resulting in fiscal 2023 leverage of 3.5 times.
888’s large exposure to the UK online market put it at risk in the upcoming regulatory review.
Berenberg reckons the shares are discounting a worse-case scenario of around a 30% hit to 2022 EBITDA, which looks excessive relative to its own forecast of a 15% impact.
