Negative future growth is currently priced in for both FTSE 250 gambling operators, yet both they will benefit from the migration of retail to online, diversification of product and geographies, use of surplus cash in acquisitions and proprietary software platforms to drive consolidation and efficiency.
READ: Entain and 888 Holdings’ upside from US gambling market not accounted for in share prices, says broker
Despite an over 100% increase in 888’s share price over the last 12 months, the US bank sees upside from estimated attractive cash flow generation, reflected in the 380p price target.
Gamesys has also seen its share price rallying over 75% and Jefferies expects further re-rating, setting the price target at 1,930p.
“We see both 888 and Gamesys as relatively more exposed to regulatory restrictions given the greater proportion of revenues from online casino/slots compared to other more sports oriented companies in our coverage universe,” analysts said.
“However, we also argue that both companies are pursuing strategies that address globalisation, diversification and consolidation, all of which should lead to a positive re-rating over time.”
“One of the key debates for the online gambling industry through 2021 and into 2022 will be the extent to which recent elevated online consumer activity sticks, once restrictions ease… We think that consumer behaviours could be re-shaped permanently.”
888 and Gamesys both rose 4% to 304.7p and 1,398p respectively on Wednesday morning.