Stock of the day 27/08/2015 – 888 Holdings PLC/Bwin.Party Digital Entertainment PLC

Sitting at the heart of one of the longest running M&A rumours of the year are 888 Holdings and Bwin.Party Digital Entertainment, both of which announce their half year results on Friday.

Let’s get to 888 Holdings first, as things get a bit trickier when Bwin is brought into the fold. The company opened the year at £1.38 and posted a gradual increase across January and the first week of February. On February 10th 888 Holdings then jumped over 17% to £1.71 following reports of a £700 million bid for the company by William Hill. As is often the case in M&A rumour-land, what goes up must come down, and after 888 announced it was rejecting the offer a few days later the stock tumbled back to £1.50.


(Source: IT-Finance.com 27/08/2015)

A strong full year report at the end of March, with a 14% increase in revenue to $454.7 million and a 28% jump in pre-tax profits to $67.9 million, couldn’t lift it out of the £1.50 to £1.60 trading bracket the stock found itself in. 888 then managed to climb back to £1.70 by the end of May, when the Bwin.Party takeover talk started to kick up a gear. The stock fell a bit across June, only to surge in the middle of July to its best price since the February William Hill rumours, hitting £1.76 towards the end of the month. However, this peak wasn’t to last (more on that later) with 888 Holdings falling to a current trading price of £1.57 (IT-Finance.com, 27/08/2015).

There is a very good reason why 888 Holdings fell from that July high, and it has everything to do with Bwin.Party Digital Entertainment. Unlike 888, Bwin got off to a pretty lousy start to 2015; after opening the year at £1.16 the stock immediately begun to fall, culminating in a near 18% drop in the middle of February to £0.84. This fall was prompted by the update that talks with William Hill, Playtech and Amaya had all fallen through, especially painful news for investors since Bwin was only as high as it was at the start of 2015 due to talk of an impending takeover. 


(Source: IT-Finance.com 27/08/2015)

Weak full year figures in March, with a 6% fall in underlying EBITDA to €101.2 million alongside a €40 million drop in revenue to €612 million, pushed the stock to a 2015 low of £0.75. The stock languished at these levels for a few months, only for Bwin’s best friend, takeover talks, to come to the rescue at the end of May. Reports that 888 Holdings and GVC Holdings (backed by Amaya Gaming) were looking into buying Bwin sent the stock surging all the way back to £1.08 in a couple of days. 

It is here where Bwin and 888 really cross paths. Since the start of June (and before the recent China-inspired volatility) Bwin has been on a near-uninterrupted climb, especially in July, when it was revealed that 888 Holdings was to buy Bwin for £898 million. This news continued Bwin’s run, and caused the aforementioned July surge for 888; however, as seen, 888 soon fell. The reason? Well, reports that Bwin were still open to a bid from GVC put the 888 deal in doubt, leading to a nightmare August for the latter as GVC submitted a £1.1 billion offer towards the end of the month. This continued 888’s tumble whilst helping Bwin rise to a current trading price of £1.14 (IT-Finance.com, 27/08/2015).

So, what can investors expect from Friday’s half year reports? Those focused on 888 Holdings will likely want to know how they fumbled the Bwin deal, especially since in mid-July it seemed guaranteed. Bwin investors, meanwhile, will want reassurance that GVC are actually going to buy the company, and that the 888-well hasn’t been poisoned for nothing, especially with reports last week suggesting GVC is getting sick of being played off against its rival bidder.

Analysts have given 888 Holdings a consensus rating of ‘Buy’ and an average target price of £1.78; Bwin.Party, meanwhile, has a consensus rating of ‘Hold’ and an average target price of £1.08.