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888 is not living up to expectations
888 (888) 157.3p
Gain to date: 2.1%
Original entry price: Buy at 154p, 20 June 2019
Half-year results from 888 (888) showed like-for-like revenue growth of 7% to $277m, with the UK casino and sports betting business the standout performers, up 23% and 50% respectively, driving a 23% growth in UK revenue.
However, earnings before interest, tax, depreciation and amortisation fell 20% to $41.8m, largely driven by higher taxes in the UK where remote gaming duty increased from 15% to 21% as well as an increase in the rate of tax paid in Romania and Italy.
Poker was particularly disappointing, where revenue fell by 24% to $23.1m, due to increased competitor marketing activity.
Consensus expectations for profit has been revised down consistently since our ‘buy’ recommendation in June and the interim results will likely lead to more downward adjustments.
We knew that the legacy poker business-to-business interests were expected to drag on earnings for 2019, but the focus on consumer operations, particularly in casino, was expected to show rapid growth, as indicated at the capital markets day on 4 June.
Casino (63% of revenue) saw 14% constant currency growth in the first half, well short of the 45% we were expecting.
SHARES SAYS: Despite signs of improving operational performance and a maintained focus on efficiencies and cost control, the company has yet to convince investors that it can deliver on its strategic objectives.
We recommend taking profit and waiting for stronger evidence that 888 is on a sustainable growth path.