888 Takeover Warning
28th May, 2010
The city believes that 888 have opened itself up for a takeover after a profit warning has emerged from the online gaming group according to the Guardian.
In April the company issued a rather disappoint update predicting that full year profits could be significantly lower than market forecasts. The main problems it seems is the continuing weakness in online poker with player figures declining by 18% for the first 5 months of this year. However they do maintain that this is a trend seen across the industry.
It is also thought that the online gaming industry could be badly affected by the forthcoming world cup. In order to lessen the effects of this, the company is continuing with its cost cutting programme and is still committed to acquisitions as the industry consolidates.
However any industry analysts believe that the company could be prey rather than predator. The company has been linked to PartyGaming and Ladbrokes in recent months.
888 shares have fallen, Panmure Gordon's Simon French commented:
“We are reducing our already below consensus estimates by 18% per annum for 2010 to 2012. This leaves the group trading on a 2010 PE of 11.2 times ... supported by a 4.5% yield. We think the group's attractiveness as an M&A target will only increase with this warning and as such will provide some downside support to the share price. We retain our buy recommendation but lower our target to 80p (from 100p). “
Greg Johnson at Shore Capital suggested Ladbrokes, who were previously interested in 888, could indeed return to the battle: “For potential suitors, we would highlight Ladbrokes, which needs greater scale in its online operation, in our view.”
KBC Peel Hunt said the profits warning is likely to dent 888's credibility but agreed it could also put the company firmly in play: “Many of the factors that 888 has highlighted are not new (ie currency, France, Poker and the World Cup). We believe a significant element of the update is meant to reset market expectations at a level from which the group can build.
We continue to believe that 888 is an attractive industry asset and today's statement could accelerate corporate activity. “
By Carol
