888/Kindred: Lady Luck is less evident after lockdowns

Friday the 13th was unlucky for Europe’s bookies. A profit warning at Oslo-listed Kindred sent its stock down 16 per cent. The shares of 888 Holdings, which is quoted in London, slipped 6 per cent in sympathy, even though it said it would meet its targets

The pandemic gave gambling companies a big boost. Punters battled the tedium of lockdown by betting more. They had bigger wads of spare cash to spend. The question now is what the new normal will look like for the industry.

Kindred’s news augurs badly. A tougher fourth quarter means full-year ebitda will now be 28 per cent lower than the market had expected. A worse outlook for this year contributed to share price declines across the market. At 888, online revenues fell 15 per cent last year.

Share prices have fallen from a peak last September; 888 has lost almost 80 per cent and Kindred is down by two-fifths. The sector has derated sharply from almost 16 times enterprise value to forward ebitda to 12 times now. Trading at less than half that reflects the challenges 888 has from high debts and its integration of William Hill.

Net debt stood at £1.7bn last year, 5.5 times ebitda largely from the purchase of 1,400 UK betting shops. Concerns about its variable rate debt have eased with much of its debt now fixed for at least three years. Including expected cost savings, which were recently revised upwards to £150mn, leverage falls to 4 times. The aim is to get it to under 3.5 times by 2025.

Revenues are expected to fall slightly this year but the integration should yield greater profits. The smallish market value — about £400mn — will react well if 888 can achieve its targets.

Counter-intuitively, new regulations should help. Stricter UK online gambling laws such as affordability checks are expected soon. That is expected to push out smaller operators, leaving market share for established groups such as 888 to pick up. Consumer demand is weakening. But 888 shares have absorbed so much punishment lately there is scope for them to rebound.