Online gaming company 888 Holdings slipped in Thursday deals after reporting first half results which were largely in line with expectations, but which reflected the tough trading environment. The company's decision to report a special dividend, however, had analysts asking questions and the recent share price performance led several to downgrade their recommendations.
Shares in 888 had dropped 7.3% by market close, down 7.6p at 86.75, as the FTSE 250 index slid 81 points, or 0.93%, to 8,701.33.
In pre-market deals, the gaming entertainment company reported earnings before interest, taxation, depreciation and amortisation (EBITDA) fell 27% year-on-year to $20.6 million for the first half of 2009, with adjusted earnings per share falling to 4.3 cents, on revenues down 13% to $117.9 million; a credible performance according to KBC Peel Hunt, given that the euro and sterling were 13% and 20% lower, respectively, against the US dollar compared with the same period in 2008. 888 announced an interim dividend of 1 cent per share and added to this a special dividend of 2.6 cents. The 3.6 cents total is notably higher than analyst estimates.
Daniel Stewart commented that the unexpected dividend payment can be justified by the group’s interim-end free capital holding of an extensive $70 million, but he added that it seemingly sounds a death-knell to thoughts that the group will continue to target a US Department of Justice settlement. Furthermore, with 18% of funds being returned to shareholders, Hollins questioned whether existing investors might be benefitting from short-term capital at the expense of longer-term earnings-accretive cash acquisitions.
Numis Securities was also left asking questions: "From an institutional shareholder perspective we find the decision strange: we doubt that many institutions are in the stock for the yield." Some institutional investors may believe that the payout of around $9 million would have been better invested in growth or acquisitions, Numis added.
And analysts at KBC Peel Hunt said they believe that a catalyst is needed in the form of a significant B2B (business to business) deal or M&A transaction if the shares are to kick-on significantly from the current level.
Both Daniel Stewart and Numis Securities downgraded their investment recommendations following this morning's results, the former to Hold from Buy and the latter to Add from Buy. Daniel Stewart advised investors to retain holdings ahead of the special dividend payout date of October 8. KBC Peel Hunt also maintained its Hold stance.
Looking ahead, the gaming company’s outlook statement struck a confident tone, with further growth promised on the back of high levels of investment in the B2B sector.
