Analysts await William Hill acquisition to determine true value of 888 stock
B2C gaming provided the bulk of 2021 revenue at $814.5m, up 17.7%. The operator launched 870 new casino games during the year, bringing its current content library to approximately 3,000 titles. It plans to double its investment in in-house content studio Section8 over the coming year.
B2C sports betting rose by 4.3% to contribute $127.4m as full-year B2B revenue came in at $38.2m. Three quarters (74%) of 888’s 2021 full-year revenue was derived from regulated and taxed markets.
888 CEO Itai Pazner said: “2021 was another record year from a financial perspective, and we have truly transformed the scale of the business over the past two years.
“This step-change in scale has come from a clear market focus on regulated markets, which now make up three quarters of revenue, and where we are seeing really positive market share trends.
“Given this strong financial and operational performance, the board remains confident that, with 888’s advanced technology, products and diversification across markets, the group is well-positioned to deliver long-term sustainable growth for all its stakeholders into the future,” he added.
The London-listed operator generated 40% of 2021 revenue from the UK ($388.9m) thanks to a 17% rise, while Europe, the Middle East and Africa (EMEA) rose by 4% to provide 34% of total at $333.5m.
The EMEA segment excludes Italy, which grew by 37% to $118.3m, or 12% of group total, while the Americas climbed 34% to 13% of overall revenue at $125.6m. The Rest of the World segment provided just 1% of overall revenue at $13.8m.
In the US, growth was modest at 6% year-on-year, reflecting reduced investment in the firm’s 888 brand and the cost of promoting the launch of the SI Sportsbook from Q3. The SI Sportsbook went live in Colorado in September and has a temporary licence in Virginia.
The full-year growth was driven by H1 performance and achieved despite a 4% year-on-year dip for H2 and a B2C revenue decline of 14% for Q4 2021.
The downturn was due to a culmination of factors, including the operator’s withdrawal from the Netherlands, a weaker than expected sports margin and a tough comparative period in 2020, a year boosted by Covid-19 trends and performance.
888 said those headwinds, combined with regulatory changes in Germany and the cost of improving safer gambling measures in the UK, damaged revenue by between $70m-$100m.Almost 40% of 888’s active customer base now has access to its Control Centre responsible gambling platform, which led to a 23% uplift in the use of safer gambling tools during 2021.
Looking at the bottom line, full-year adjusted EBITDA rose by 6% to record levels of $165m. This resulted in net cash of $174.5m, although the balance sheet is about to be transformed by the acquisition of William Hill.
The board has opted against paying a dividend to shareholders because it will need to raise capital, including plans for a £500m equity raise, to finance the William Hill transaction.
That transaction is expected to complete in Q2 2022. “We continue to believe the William Hill deal will complete in 2Q22, as previously guided by management,” said Peel Hunt analyst Ivor Jones.
“Any equity raise will, we believe, be a rights issue, so the recent share price weakness should not imply a dilution to the interests of shareholders. However, the market conditions are clearly challenging for a £500m equity raise, particularly in the context of 888’s current, much-reduced, market cap.
“There remains much to like about 888, with the completion of the William Hill acquisition a catalyst for future upgrades. A much larger revenue base will make it more attractive to more investors,” added Jones.
In contrast, investment bank Numis said it much preferred the prospects of the “more geographically diversified” Entain as there is too much uncertainty around the valuation of 888 due to the pending Hills transaction and the result of the UK’s Gambling Act review.
Paul Leyland of Regulus Partners said 888 has four key challenges going forward, the results of which will determine the future success of the business. Two of those challenges relate to the William Hill acquisition.
“[888 must] use William Hill (betting-led) and the revitalised 888 brand to position further into the mass market, where growth is stronger and regulatory risks are lower, or risk falling into the regulatory ‘salami slicer’ in the UK and elsewhere,” commented Leyland.
“[It must also] ensure that William Hill’s retail estate adds value as a brand ambassador as well as a cash cow, or risk a crumbling medium-term outlook,” he added.
After the reporting period, 888 said January and February trading was up by “mid-single digits” compared to Q4 2021 but down double-digits when compared to the prior year.
Looking further into 2022, the operator plans to launch its services in several new markets, including Ontario, where it has received a licence, and re-enter the Netherlands.
The US will also be key to future growth. 888 intends to go live in up to four additional states with its SI Sportsbook and plans to launch poker on a B2B basis in Michigan pending regulatory approval.
888’s share price is down by 2% at the time of writing to 189p per share.