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Shares in 888 are trading more than 18% higher following the release of the company’s full-year 2022 financial results and a Q1 2023 trading update.

Topline numbers

888’s total reported revenue for 2022 was £1.24bn, an increase of 73.9% year-on-year. 

That figure includes revenue from William Hill’s non-US assets, but only after 888’s acquisition of the brand was completed in July 2022.

On a pro-forma basis, calculated as if 888 had owned William Hill throughout 2021 and 2022, total revenue across the business was £1.85bn in 2022, representing a 3% decline on the prior year.

Reported adjusted EBITDA came to £217.9m for the year, up 82%, with growth driven by the William Hill acquisition.

The firm also had an adjusted profit before tax of £80.5m, a year-on-year decrease of around 10%.

After exceptional costs and adjusting items of £184.8m, however, the business declared an actual reported loss before tax of £115.7m.

This was a result of amortisation of acquired intangibles, impairment of historic US goodwill and William Hill technology no longer under development, as well as transaction fees for the acquisition and the resulting integration and restructuring costs.

In Q1 2023, according to the company’s trading update, 888 generated £469m in revenue, down 4.9% year-on-year.

Declines across the UK and Ireland online and international business segments were partially offset by 8.5% growth in the company’s UK and Ireland retail operations, which accounted for £140m or 31.4% of total Q1 revenue.

News nugget

888 expects to recover between 40% and 50% of the revenue lost following its suspension of all VIP accounts in the Middle East earlier this year.

In January, a compliance investigation saw the company suspend all VIP activities in the region after discovering that KYC and AML procedures had not been properly adhered to.

Of the suspended customers, many are expected not to return to the business. 

However, 888’s board said it expects to recover as much as half of the revenue lost from the account suspensions as some customers are reactivated.

Robust policies and procedures have been put in place to allow the accounts to be reopened, the business said, but the account closures are likely to cause headwinds for full-year 2023 of between £25m and £30m.

Speaking on the firm’s full-year 2022 earnings call, executive chair Lord Mendelsohn said following the action in the Middle East: “We have invested significantly in our compliance team with the drive for higher standards, headed by our new chief risk officer Harinder Gill, who joined the group last summer. 

“I’m highly confident that our policies and procedures are robust, and this failure was isolated to a very specific cohort of players. We have found no further issues and we do not anticipate any further actions here,” Mendelsohn concluded.

In other news, 888’s board said it is making good progress with its search for a new CEO, while CFO Yariv Dafna has agreed to remain in his position until the end of 2023 to provide continuity to the firm’s board and executive team.

Dafna had previously announced that he would stand down from his role in March this year.

Best question

The best question on this call came from Francesco Barbato, credit research associate at JP Morgan. He asked what measures 888 had taken in the UK in advance of the Gambling Act review white paper, which is expected to be published next week.

In response, Lord Mendelsohn said: “We’ve rebuilt the entire team, rebuilt processes and enhanced our whole risk approach. We have implemented a number of measures around protecting customers from rapid losses, reducing 30-day net deposit limits, implementing third-party vulnerability checks, and other hard stops pending assessments of safer gambling and anti-money laundering. 

“We’ve done more to introduce protection of customers in retail and reduce the spending triggers there. We’ve also looked at additional training for our retail colleagues which they’ve done extremely well at adopting, we’ve got a more coordinated approach to monitoring all those things and we’ve enhanced our AML processes.

“So we’ve got a pretty comprehensive range of things that we’ve done to make sure that in the UK and indeed across the business in all jurisdictions, we’re doing as much as we can to ensure that we’ve got the highest possible standards and the safest possible experience for our customers.” 

Best quote

888 strategy officer Vaughan Lewis: “The business has quickly changed from one that is competing at low scale in a huge range of markets to one that is laser focused on maintaining and building really strong and sustainable positions in three core markets and five growth markets.”

Current trading and outlook

888’s focus for the immediate future is the reduction of its net debt/EBITDA ratio, which currently stands at around 5.6x on a pro-forma basis.

The business intends to reduce that figure to under 3.5x by 2025, through a combination of growing its EBITDA and paying down its debts.

888 is also targeting annual revenue in excess of £2bn, an adjusted EBITDA margin of more than 23% and adjusted earnings per share of more than 35p by 2025.

Investment bank Peel Hunt noted that the 2022 results and Q1 trading update were broadly in line with expectations, adding: “We see ‘no news’ from this highly leveraged business as good news,” and reiterating its Buy recommendation and 150p target price.

Peel Hunt also noted that the business is on track to deliver £87m worth of operating cost synergies in 2023, with more to come in 2024.

With recent market launches in Ontario, Virginia and Michigan, alongside the launch of 888AFRICA, “there is plenty going on commercially to encourage us that 888 can return to top-line growth,” the firm added.

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