It’s been a horrible year for 888 Holdings (LSE: 888) shares. The price soared in 2021, but since September that year, we’ve seen a 75% collapse. Things got worse Monday when 888 slumped 27%. It actually dropped a bit lower during the day, down 30% at one point.
The shares dipped a further 6% Tuesday morning. So what happened? And what do shareholders need to watch for now?
It’s all about the suspension of a number of the Gibraltar-based gambling operator’s VIP accounts in the Middle East. It follows failure to adhere best anti-money laundering practices. Oh, and chief executive Itai Pazner has departed.
The company said: “Following an internal compliance review, it has come to light that certain best practices have not been followed in regard to KYC (Know Your Client) and AML (Anti-Money Laundering) processes for 888 VIP customers in the Middle East region. While further internal investigations are underway, the Board has taken the decision to suspend VIP customer accounts in the region, effective immediately“.
Modest sums
The sums involved, around £50m, represent only around 3% of total revenue. The problem also affects only the one region, the company said. So investors should probably not expect any global fallout, at least not at this stage. Even if the selected accounts remain suspended, it looks like the hit to the bottom line should be minimal.
Chairman Lord Mendelsohn will take on the role of executive chair while the board looks for a new boss.
At the moment, the ongoing investigation is purely an internal one. So investors shouldn’t assume there’s going to be any regulatory fallout. But they will be aware that 888 Holdings has faced financial penalties before. Only last year, the UK Gambling Commission fined the firm £9.4m for compliance failings.
Regulatory eye
According to the Financial Times, Gibraltar’s gambling commissioner will be reviewing the situation. They told the newspaper: “It is too early to say what the regulatory outcome will be, but on the known facts, and because of the level of commitment to resolution, licence suspension or revocation is highly unlikely“.
If I owned 888 Holdings shares, I think I’d be concerned about the possibility of action. But probably not unduly so. UK regulators however, have yet to comment on the events.
My main concern, right now, would be with the company’s debt situation. And any impact on its plans to boost revenues and cash flow.
Debt
As of 30 September 2022, the 888 balance sheet was groaning under £1.8bn of gross debt. It was a result of paying £1.95bn for William Hill’s non-US operations in July the same year. The company is valued at just £321m.
Now ex-CEO Pazner said at Q3 time, that the board was “focused primarily on successful integration, execution and de-leveraging in order to unlock the huge potential from our enlarged business” following the William Hill acquisition.
Will the latest revelations, coupled with Pazner’s departure, damage those plans? We shall have to wait and see. Meanwhile, full-year results are due in late March. Close scrutiny would seem wise.
