888 Holdings shares crash 25% on legal probe

888 Holdings shares crashed by a quarter on Monday morning, following two shock announcements. After falling 70% in a year, is this stock a busted flush?

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Monday morning brought brutal news for shareholders in online-gambling group 888 Holdings (LSE: 888), as its shares collapsed by more than a quarter following a shock regulatory announcement.

As I write on Monday morning, 888 Holdings shares stand at 74.85p, down a whopping 27.5% on Friday’s close. They fell even further earlier in the day to a 52-week low of 73.3p. That’s a far cry from their 52-week high of 292.8p, hit almost a year ago on 11 February 2022.

Here’s how the 888 Holdings share price has crumbled in the short and medium term:

Five days-24.0%
2023 YTD-14.0%
One month-13.9%
Six months-48.2%
One year-70.7%
Five years-73.1%

888 Holdings shares have crashed by more than seven-tenths over one year and by almost three-quarters over the past half-decade. So what’s the latest bad news?

CEO quits after suspected money laundering

In the latest of a long line of unpleasant updates, the company revealed that it had launched an internal investigation into suspected money laundering by VIP customers. This led to several Middle East accounts being suspended. In total, these customers account for about £50m in yearly revenues, or around 3% of 888’s total.

Following this shock revelation, chief executive Itai Pazner announced his resignation, after four years leading the group. Pazner had been at the Gibraltar-based company for more than 20 years. Earlier this month, finance chief Yariv Dafna announced his departure at the end of March.

The group is burdened with debt

To be honest, this bad news is just the latest in a series of unfortunate events for 888 and its share price. In 2022, the group was fined £9.4m by the UK’s Gambling Commission for compliance failings.

Also, the company paid £1.95bn in July 2022 for the non-US operations of rival William Hill, including 1,500 UK betting shops. This has left the group with £1.8bn of debt on its balance sheet, more than five times its current market value of around £330m. Yikes.

888 Holdings looks too risky for me

I don’t own shares in 888 Holdings — and I wouldn’t buy any today, even at their much-reduced price. With discretionary spending falling due to soaring inflation and sky-high energy bills, Brits are cutting their outgoings. I imagine few people bet heavily when they can barely cover their basic expenses.

Also, with interest rates rising, the group’s floating-rate debt pile looks like a huge burden to me. Indeed, the company has already made reducing net debt its top priority until end-2025. Also, a UK government review is likely to tighten ‘safer gambling’ rules, hitting 888’s revenues yet further.

In summary, I see 888 Holdings as a high-risk stock and, therefore, unsuitable for me as a veteran value and income investor. However, I could be wrong and the gambling group might bounce back as the economy rebounds. But I will leave these plunging shares to investors with bigger risk appetites than mine. As one old stock-market saying goes, “Never catch a falling knife!”

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D'Arcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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