“We have recalculated the earnings enhancement from the William Hill acquisition to account for the 49% fall in the share price since September and changes to our 888 forecasts,” said Peel Hunt analyst Ivor Jones.
“As a result, the FY24E EPS enhancement has fallen from 86% to 41%, and this is the driver for the reduction in our share price target from 750p to 600p.
“We expect 888 to publish the deal-related shareholder circular next month and this should give us an opportunity to update our calculations with more current William Hill forecasts,” he added.
888 is expected to wrap up the William Hill deal in Q2 but still needs to generate £500m via a capital raise to help fund the deal.
This was a major reason behind the operator deciding not to pay a dividend to shareholders following the publication of its full-year 2021 financial results at the beginning of March.888’s share price shot to a closing peak of 478p on 9 September 2021 after the deal to acquire William Hill was announced. However, it currently sits at just 195p per share.
Peel Hunt considered all outcomes in its note to investors.
It said: “If shareholders do not support the transaction as announced, we believe it is possible that the terms could be revised; Caesars may struggle to find another buyer and clearly wants William Hill off its books.
“However, we have also evaluated 888 on the basis that it does not acquire William Hill.”
Should the acquisition fail to materialise for any reason, the investment bank said the stock would still be undervalued on a standalone basis and guided to an alternative target price of 400p.
“888 would become a likely takeover target again, made more vulnerable by the failure of the transaction,” said Jones.
“Accounting for the standalone growth potential, and the potential for 888 to become a bid target, we would have a 400p target price on this basis of no William Hill deal,” he added.