888 feeling lucky after first half proves to be a winner

published 12 July 2012

Gaming entertainment provider 888 came up trumps after raising profits guidance for the year on the back of a strong second quarter.

The second quarter of the year saw a return to historical seasonal revenue patterns. However, profitability increased compared to the first quarter.

Given the strong trading, 888 expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the first half of 2012 to significantly exceed current expectations.

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The firm's pointed to the performance of its Poker offering in Spain, where 888 is currently ranked number two, as an example of its ability to build share in new markets.

However, the delay in the introduction of the new regulatory regime in Spain, introduced in June, resulted in a delay in marketing spend in the country, originally planned for the first half.

In Germany, the introduction of federal taxation on sports betting has had negligible effect, given the size of the group's Sport business in the country.

Looking to the second half (H2) of the year, 888 said: "Margins will be slightly impacted by investment in marketing in order to secure a leading position in Spain, investment in infrastructure ahead of delivering announced deals in the United States and the unknown impact of the Olympic Games in London.

"This means that, while H2 is expected to show slightly lower margins than the strong first half, EBITDA for the full year will be materially ahead of current expectations."

Peel Hunt described 888 as a business "on top of its game" and predicted that there is more good news to come.

It responded to the update by upgrading its current year EBITDA forecast by 26% to $58m, which would suggest a lower EBITDA in the second half; such a conservative view is justified, Peel Hunt believes, by "the additional marketing spend in Spain, increased taxation and the potentially disruptive impact of the Olympics."

Panmure Gordon also upgraded its EBITDA forecast, b y 22% to $56.1m, and also raised its target price for 888 from 93p to 108p. The broker, which rates the shares a "buy", believes the risks to forecasts remains !firmly on the upside".

The share price rose 13.1% to 8.50p by 15:37.