Is now the time to invest in 888 shares?

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Is now the time to invest in 888 shares?

Describing the past year for 888 Holdings shares as merely bad doesn’t quite capture the enormity of the situation. Despite enjoying a substantial rise throughout 2021, the shares took a nosedive, dropping a staggering 75% from September of that year until December 2022. They've since plummeted even further, reaching a low not seen since 2014. What factors have contributed to this downturn, and what key aspects should potential investors be attentive to?

This downturn was largely triggered by the suspension of the Middle East VIP accounts, following revelations of failures in adhering to established money laundering protocols. This situation implicates approximately £50 million, equating to about 3% of total revenue. Further exacerbating the situation, CEO Itai Pazner has resigned, adding another layer of complexity.

However, it’s not all bleak for 888 Holdings. The investigation is entirely internal, and there’s no concrete evidence – as of now – that it will culminate in regulatory repercussions. Nonetheless, prospective investors should be cautious, given 888 Holdings’ history of financial penalties, most notably a £9.4 million fine issued by the UK Gambling Commission last year for compliance failings.

For 2022, 888's online revenue experienced an overall decline of about 15%, with the last quarter witnessing a dip of 5%. The company's cost-cutting measures have been drastic, including layoffs from its Israeli branch.

In July 2022, 888 took over William Hill’s non-US operations for approximately £1.95 billion, thereby raising the company’s total debt to a staggering £1.8 billion. William Hill is a well-established global brand and a key player in the UK betting market, which was previously under the umbrella of Caesars Entertainment until their acquisition in April 2021.

At present, the central issue plaguing 888 Holdings is its hefty debt, which poses a direct threat to its strategies aimed at improving cash flow and revenue. After integrating William Hill, the challenge now lies in capitalizing on the synergies of the merger to enhance the company’s value.

Although the share price of 888 Holdings currently remains suppressed, prospective investors might see this as an enticing opportunity. With the full-year financial results looming in the near future, a thorough analysis is advisable. The lingering debt raises concerns, and the potential for regulatory intervention looms, though UK authorities have yet to weigh in. Our recommendation is to proceed cautiously and consider testing the investment waters.

As of the latest update, the share price of 888 Holdings stands at 71.60, noted at 14:00 on February 22, 2023, seeing a slight dip from the previous closing of 72.20.