30th Jan 2023 11:08
(Alliance News) - Investors were warned on the future of betting stocks on Monday, after 888 Holdings said its chief executive has left the company immediately, with the online gaming operator also reporting it has suspended some activities in the Middle East amid a customer compliance probe.
"This news is clearly likely to have a negative impact on a share price already burdened with too much debt, and may have a knock-on impact on other other gambling companies, as shareholders reflect on the unpredictability of regulatory risks," said Peel Hunt analysts Ivor Jones and Douglas Jack.
The FTSE 250 stock dropped 26% to 75.98 pence each in London on Monday. Peel Hunt still rates 888 at 'buy', with a target price of 210.0p.
In the FTSE 100, peer Entain PLC shed 1.3% to 1,504.50p, whilst Flutter Entertainment PLC lost 0.4% to 12,420.00p.
The departure of CEO Itai Pazner comes just over two weeks after the company announced Yariv Dafna would step down as chief financial officer.
Dafna was due to leave 888 at the end of March; however, on Monday, 888 said he now will stay in the post until the end of 2023.
Non-Executive Chair Jonathan Mendelsohn will take over as executive chair on an interim basis, while the gambling firm hunts for a new CEO. 888 did not give a reason for Pazner's sudden departure.
888 also announced it has suspended VIP activities in the Middle East region ahead of the "outcome of an internal compliance investigation".
Following an initial review, 888 said some of its units in the Middle East region have fallen short in know your client and anti-money laundering compliance measures. 888 said it currently believes the issues are "isolated to this region only".
"While further internal investigations are underway, the board has taken the decision to suspend VIP customer accounts in the region, effective immediately. The board currently estimates that the impact is less than 3% of group revenues, should the suspensions remain in place," 888 said.
"While these two pieces of news were announced separately, it seems reasonable to assume that the CEO departure is, at least partly, a consequence of the compliance failings," said Peel Hunt's Jones and Jack.
AJ Bell Investment Director Russ Mould drew similar conclusions.
Mould said: "Gambling stocks are under enough regulatory scrutiny as it is without inviting reasons for further attention and yet that's exactly what 888 has done. News it is suspending VIP accounts in the Middle East over best practices not being followed over money laundering is incredibly damaging. Combine that with the announcement of CEO Itai Pazner's immediate departure and the market is likely to draw its own conclusions. A brief and to the point statement with the usual pleasantries doesn't indicate the reason for his exit, leaving the obvious supposition that this debacle is to blame."
Back in March, the UK Gambling Commission handed 888 a GBP9.4 million fine for "social responsibility and money laundering failings".
"This is the second time 888 UK Ltd has faced enforcement action – in 2017 they paid a GBP7.8 million penalty package for failing vulnerable customers," the watchdog said at the time.
"Longer term the betting industry faces scrutiny for the harm it does to wider society – with those harms only likely to be magnified against a more difficult economic backdrop," Mould warned on the industry's outlook.
By Sophie Rose, Alliance News reporter
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