888 profits pop after pivot overseas, casino platform launch

Online gaming group 888 Holdings on Tuesday reported a strong improvement in annual profits despite UK regulatory pressures hitting revenue, and said "positive momentum" had continued into 2019.

Turnover dropped 2% to $529.9m in the past calendar year after UK revenue fell 16% to $170.6m due to "sweeping changes" made by the company amid increased regulatory pressures.

Excluding the UK, group revenue would have increased 8%, but while recent and forthcoming changes to regulation and taxation "could present potential headwinds for profitability and growth", the FTSE 250 group said it was "pleased by the recent encouraging trends witnessed in our UK business".

Adjusted profits were up 11% to $86.7m and adjusted EBITDA increased 6% to $107.1m, beating the consensus analyst forecast of $104m. Tight cost control led to EBITDA margin increasing 160 basis points to 20.2%.

Aided by a strong FIFA World Cup and a good showing in EMEA (Europe, Middle East and Africa), the FTSE 250 traded company's adjusted underlying earnings (EBITDA) climbed by 6% to a record $107.1m.

Statutory profit before tax of $108.7m was almost a five times higher than the year before, after the company received exceptional income of $11.1m as opposed to the exceptional costs of $50.8m which it incurred in the prior year. Exceptional income stems from a German legacy VAT matter relating to the provision of gaming services in Germany prior to 2015 which resulted in an exceptional provision of $22.4m, while the group also recorded a provision of $10.4m in respect of regulatory matters related to customers' prior activity and $0.9m legal and professional costs related to aborted M&A efforts.

Chief executive Itai Pazner said: "The positive momentum at the end of 2018 has continued into the first quarter of 2019 with average daily revenue in 2019 to date up 10% compared to Q4 2018 reflecting improvements across major KPIs. In the UK, we are encouraged by the improving trends we began to witness in the latter stages of 2018 and the board is pleased to report that these have continued during the first quarter of the current financial year."

Pazner added that, after a "resilient" performance in 2018, the board saw a number of significant growth opportunities for the business in both new and existing markets.

Analysts from Peel Hunt said the results "highlighted 888’s resilient and flexible business model as it diversified away from the UK market and enjoyed strong growth in other European regulated markets", with Casino the "star performer" driven by the gradual launch of the new Orbit platform but Poker and Bingo declined as well. B2B revenue declined 8%, reflecting a challenging UK bingo market and the termination of the Cashcade agreement in H2.

"888 has the geographic diversity to insulate it somewhat from challenges in the UK," the analysts said. "It has a technology platform which allows to grow revenue efficiently in new markets and which makes it an attractive commercial or M&A partner."

888 Holdings' shares were up 3.27% at 167.92p at 0832 GMT.