- 2024 earnings guidance lowered to bottom of range
- Full year 2023 revenue falls 8% to £1.71 billion
- Strategic update expected with full results on 26 March
Shares in gambling and gaming company 888 Holdings (888) sank by a tenth on Wednesday after the company reduced 2024 profit guidance to the lower end of current market expectations.
The shares are down around 19% over the last year compared with a 6% drop in the mid-cap FTSE 250 index.
It has been a difficult time for shareholders since the transformational acquisition of William Hill’s international business for roughly £2 billion in July 2022.
Sentiment was damaged after the sudden resignation of long-serving CEO Itai Pazner a year ago following a failure of anti-money laundering practices in the firm’s Middle East business.
The group has since revamped the senior management team with Per Widerstrom joining as CEO in October 2023. Full year results are expected to be released on 26 March which will include details on ‘evolving’ strategic plans and new medium-term targets.
WHY IS GUIDANCE BEING LOWERED?
Despite providing a positive longer-term outlook, an increase in marketing expenditures in 2024 is expected to reduce EBITDA (earnings before interest, tax, depreciation, and amortisation) to the lower end of analysts’ consensus forecasts.
According to analysts at Berenberg the consensus range is £340 million-to- £397 million. Assuming consensus is in the middle of the range implies a downgrade of around 8% to forecasts.
Paul Leyland at Gambling consultancy Regulus Partners reckons the lower outcome equates to 10% growth in EBITDA over the roughly £310 million expected for 2023 based on an EBITDA margin of 18% and revenue of £1.71 billion.
Leyland points out this is equivalent to the £30 million cost savings initiative announced in December 2023.
‘Over the last decade both 888 and William Hill have taken brief respites from endemic underperformance and claimed the beginning of a turnaround.
‘With £1.6bn of debt, rising underlying costs, a less forgiving macro-environment, and continued regulatory uncertainty, the combined group now needs a real turnaround to survive, in our view’, said Leyland.
OTHER EXPERT VIEWS
Investment director Russ Mould at AJ Bell commented: ‘The latest update from William Hill owner 888 reveals the material impact of tighter regulation on the gambling sector. This will only become more of an issue as time goes on, given the direction of travel on the rules the industry faces.
‘The good news is the company is ahead of schedule on taking costs out of the business, but the plan to increase marketing spend off the back of it and therefore push earnings to the lower end of the consensus range has gone down like a lead balloon with investors.’
Russell Pointon, Director of Consumer at research firm Edison said:’ 2023 was a very challenging year for 888, including compliance issues, upheaval of senior management, regulatory changes, and high-interest rates.
‘Despite these 888 has reported total FY23 revenue of £1.711 billion, aligning with analyst expectations and has indicated profitability will broadly be within the range indicated by management.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Steven Frazer) own shares in AJ Bell.
