Deutsche Bank resumes coverage on 888 Holdings at 'buy'

Deutsche Bank noted that 888 had "finally" secured William Hill, just over a year after it started to prepare for an auction of the UK's leading online gaming business.

The German bank stated that twelve months on, 888 was "in the driving seat" but also highlighted that there were now "key differences to the vehicle".

"The terms have improved, but financial markets have not, resulting in a higher borrowing cost, and a considerably lower share price, down by 60% since the deal was announced," said the analysts, who hit the stock with a 350.0p target price.

DB pointed out that four concerns had overshadowed the deal - first of all being the fact that it has left 888 "highly levered", with a year-end debt/underlying earnings ratio of 4.9x, and 4.0x at the end of 2023, materially the highest in the UK sector.

Secondly, DB noted that the group generates 40% of revenues from UK online gaming and was, therefore, "highly exposed" to the forthcoming Gambling Act review, which could raise leverage further.

In addition to this, Deutsche said there were risks to execution, particularly around the migration of customers over to a combined technology platform, and lastly, pointed out that there was also the risk of a slowdown, given the weakening consumer backdrop.

Reporting by Iain Gilbert at Sharecast.com