888 ‘won’t be shy’ of M&A for long

888 ‘won’t be shy’ of M&A for long

Tuesday, March 21, 2017
Operator on the up on sports and Spanish gains

888’s success in sports-betting and the establishing of Spain as the company’s second biggest market were the highlights from results for last year which showed an 18 percent rise in revenues on a constant-currency basis.

Despite the distractions of being involved in the £3bn two-way bid with Rank for William Hill last summer, 888 demonstrated continued growth for the year with business-to-consumer revenues rising 20 percent on a constant-currency basis to $460.2m (€425.5m) while total revenues came in at $520.8m.

Casino was up 26 percent (constant currency) to $279.3m, but it was the sports-betting segment that truly impressed with revenues up 49 percent to $51.9m. Poker headed in the other direction, however, down 3 percent to $84.4m while bingo was up 7 percent in constant-currency terms but fell 5 percent in absolute terms to $41.8m.

“The strength of sports is making up for the relative weakness of poker and funnelling new players into the casino,” said Ivor Jones, analyst at Peel Hunt.

The results also showed that Spain is now 888’s second biggest market with 45 percent growth, although the amount was not disclosed. The company said the Spanish operation had been driven by regulatory changes with the licensing of slots midway into 2015 helping to push revenues in the subsequent 18 months.

Total Europe ex-UK revenues rose 29 percent over the year to $231m and now represent the largest geographical reporting segment at 44 percent of total revenues. The UK now represents 43 percent and it saw total revenues fall behind the pace of 888’s other regulated markets with a lagging 5 percent rise to $223.2m.

Growth in the Americas, including 888’s licensed activities in New Jersey and Delaware, were down 7 percent while the rest of the world was down 4 percent. The cost of the growth was evident in the marketing costs which rose 22.5 percent to $170.2m in absolute terms.

The company said current trading remained positive with average daily revenues up 11 percent year-on-year on a constant currency basis.

Analysts at Numis predicted 888 would be involved in further potential M&A activity after having “sat on the sidelines” of late. “We still see scope for it to be involved in industry consolidation,” said Numis’ Richard Stuber. “888 is well-diversified, with proprietary technology and a strong balance sheet.”

Jones at Peel Hunt said the right deal would be a “win-win” for both 888 and any potential M&A partner. “In the results meeting management was admirably clear about the value locked-up in the company,” he added. “If 888 were part of a larger group, its platform could replace third-party gaming technology and its CRM and marketing skills could enhance revenue growth.

EBITDA rose 24 percent (constant currency) to $90.2m and the company said with “substantial free cash flow” it was able to announce a one-off dividend for investors of 10.5c per share.

Totally Gaming says: The continued success of 888 is commendable, as is the way the company has driven its sports-betting business forward. As the analysts note, the name of 888 is conspicuous by its absence in the list of completed M&A deals; it is a situation which is unlikely to remain the case for too long given the company’s attractive footprint and its evident success in driving profits.

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