Why are 888 shares falling?

888 shares fall on higher regulatory and finance costs.

sharesmagazine.co.uk - 888 shares fall on higher regulatory and finance costs

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-Higher regulatory and finance costs sour Q3 update

-Full year EBITDA in line with market expectations

-November capital markets day

Betting and gaming company 888 Holdings (888) said third quarter revenues to 30 September fell 7% year-on-year to $449 million, leaving them down 3% year-to-date. Despite guiding for better trading in the final quarter and meeting full year EBITDA (earnings before interest, taxes, depreciation, and amortization) expectations, higher financing costs related to the transformational £1.95 billion William Hill acquisition soured the update, sending the shares 4.3% lower to 86.3p. Given the sharp increase in interest rates seen across major economies in the last few months 888 has provided further detail on expected financing costs. After entering various hedging arrangements, the company has fixed around 35% of its interest costs with the remainder subject to floating interest rates. Full-year interest costs are expected to increase by around 25% from $150 million in 2022 to approximately $175 million in 2023. Travel and leisure analyst Mark Photiadis at Canaccord Genuity reduced his pre-tax profit forecast by 14% and 27% respectively for 2022 and 2023 to reflect the higher cost of borrowing. At the period end gross debt at current exchange rates was £1.81 billion with net cash of £186 million equating to total liquidity of £336 million.

HIGHER REGULATORY COSTS

Enhanced UK consumer safety measures and the closure of the Netherlands business due to regulatory changes saw total online revenues fall by a tenth. The introduction of more stringent online measures in the UK in the final two quarters of 2021 drove a 14% reduction in average year-on-year spend per player. Retail revenues were stable at $124 million despite around a $4 million impact from the temporary closures of shops and cancellation of sporting events related to the national mourning period.

MEETING FULL YEAR EXPECTATIONS

The company anticipates trading to show an improvement in the final quarter helped by the football World Cup and good progress on synergies and cost efficiencies. This means full-year EBITDA is expected to be in line with market expectations of between $310 million and $315 million. Photiades maintained his buy recommendation on the shares saying: ‘The next catalyst is likely the capital market day in late November, and we expect a detailed update on the integration of the two businesses and plans to extract and deliver the significant synergies previously outlined.’

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