What do you do when the long term picture is good but short term factors look scary? You nibble. From a fundamental perspective, 888 is extremely oversold. It’s still at the same levels it was back in 2013, back when 888Sport was still in diapers and grouped in Emerging Offerings. Revenue was 26% less than it is now, and EBITDA was 30% less. If we want to go really back in time, 888 now is at the same levels it was during the 2008 financial crisis. EBITDA was half of what it is now, dividends were also about half of what they are now, yet we are trading at the same levels.
The reasons are primarily regulations, poker, and general UK and European instability that unfortunately appears on the verge of getting worse. Granted, this excuse can only placate markets for so long, and apparently investors have lost patience and capitulated. But that doesn’t change the fact that despite it all, 888 is making more money, still has no debt, owns more assets, owns a key to the US market once it opens wide, runs more verticals, and is generally sitting comfortably.
From a technical perspective, we saw a massive 27% reversal on what looks like (gotta squint here) the 4th biggest uptick weekly trading volume in the stock’s history earlier this month. Moves like that mean that sellers (at a given price of course) are exhausted, and to get anyone else to give up their shares, a huge premium had to be offered by a bunch of buyers on the hunt for about 26 million shares. The run-up took place over a whole week, with most of the volume explosion taking place on June 4 and 5. Total trading volume works out to about 7% of the company’s market cap, so we have a good chunk of 888 owners right now sitting on pretty decent profits.
Will they sell? Some of them might as we get closer to Halloween and the Brexit clock ticks down and everybody starts freaking out all over again, but some of them will hang on because dividends are high enough to justify a long term hold by themselves. Besides dividends, the upside from here, as opposed to the upside from 2013, is much larger. Long term, the US market is going to open wider, and 888’s acquisition of the remaining stake in the All American Poker Network is them preparing to take advantage. It’s going to take years, yes, but I believe that besides the long game of bottom line numbers in the US rising, investors are missing an important angle here that can materialize much faster: US-based trading volume.