Evoke (888) - Struggling with high leverage and regulatory headwinds

Background:

• • 888 Holdings plc (rebranding to “evoke plc”), global online betting and gaming operator headquartered in Gibraltar and the UK. LTM EBITDA £230.6mm (statutory, FY2024). Total Net Leverage c.6.8x using Clean EBITDA.
• • Operates William Hill, 888casino, 888sport, Mr Green and retail betting shops in the UK, plus B2C online in multiple regulated markets. Revenue is primarily from online casino and sports betting; retail complements UK brand presence.
• • FY2024 EBITDA: £230.6mm statutory; Adjusted EBITDA £252.5mm. FY2024 Adjusted EBITDA margin 14.4% on £1,754.5mm revenue; statutory EBITDA margin 13.1%. YoY: FY2023 Adjusted EBITDA £308.3mm on £1,710.9mm revenue, so FY2024 Adjusted EBITDA declined.
• • Management: CEO Per Widerström (appointed October 16, 2023). CFO Sean Wilkins (appointed February 1, 2024). Strengthened risk, compliance and ESG oversight in 2023–2024. These changes underscore execution focus but also reflect prior governance and compliance gaps.
• • Segmental breakdown: The group reports by UK Retail, UK Online and International Online. Product mix in FY2023 was c. 68% Gaming, c. 20% Online Betting, c. 9% Retail, indicating EBITDA is predominantly driven by online casino and sports betting; retail is lower-margin but strategically important for brand distribution.
• • Geographic breakdown: Core markets are the UK, Italy, Spain and Denmark. The UK is the single most important market for revenue and profit, with additional regulated exposure in EU and Ontario. US B2C exposure is limited and not a material EBITDA driver.
• • Revenue model and contractual structure: Revenues are transaction-based (stakes and GGR) with the operator’s “take rate” (house edge) or sportsbook margin determining gross revenue, net of free bets/promotions and gaming duties. There are no long-term customer contracts; revenue depends on active users, stakes, and margin. KPIs include Average Monthly Players (FY2023: 1.2mm) and product-specific margins. Revenue pass-through of inflation is limited; while pricing of bets adjusts dynamically, regulatory caps and consumer affordability checks constrain monetization. There is no explicit inflation pass-through in customer “contracts.”
• • Cost structure: FY2024 cost of sales £603.9mm; FY2024 marketing expense £268.1mm; FY2024 statutory operating expenses £650.9mm; D&A £230.8mm. Variable costs comprise gaming duties and taxes, payment processing, content and promotional credits; semi-variable costs include marketing; fixed costs include personnel, platform/IT, compliance and retail overhead. Personnel is a substantial component of opex (not separately disclosed), but the growing regulatory and compliance footprint increases the fixed-cost base and reduces flexibility.
• • Strategy: “Value Creation Plan” targets 5–9% revenue growth p.a., c.100 bps annual Adjusted EBITDA margin expansion, and leverage below 3.5x by end-2026. Strategic pillars are: focus on core regulated markets (UK, Italy, Spain, Denmark); accelerate operating leverage via “Operations 2.0” using AI/automation; unify product and technology; and disciplined capital allocation to delever. The group has actively shifted away from dotcom exposure and tightened safer-gambling controls, which has pressured near-term revenue but is intended to improve quality and sustainability.
• • Competitive landscape: Faces scale leaders (Flutter, Entain, bet365) and regionals (Kindred, Betsson, LeoVegas). In the UK, Flutter’s Sky Bet and Entain’s Ladbrokes/Coral are entrenched; in Italy and Spain, local scale players and these groups compete aggressively. Market share pressure is ongoing as larger peers benefit from greater marketing efficiency, proprietary tech, and diversified brands.
• • Corporate actions: Acquired William Hill International (non-US) in 2022; disposed of Latvia business in 2023; executed sale-leasebacks of certain freehold retail properties in 2023; rebranding to “evoke plc” signaled in 2024. The group reached a £19mm regulatory settlement with GB Gambling Commission in 2023 and a separate settlement with Gibraltar regulator later in 2023 following self-reported VIP process failures dating back to prior ownership; both increase compliance costs and oversight.
• • Current trading: 1H2025 (unaudited) revenue £887.8mm (1H2024: £862.0mm), Adjusted EBITDA £165.9mm (1H2024: £115.5mm). Operating profit £39.1mm vs loss in prior period, but loss after tax remains £64.7mm due to high finance expenses. This indicates early benefits from cost actions, but the capital structure still suppresses bottom-line profitability.

Risks and mitigants:

• • Customer concentration: No single-customer concentration; concentration is by jurisdiction and product. Regulatory concentration in the UK remains high.
• • Large EBITDA adjustments: FY2024 Adjusted EBITDA £252.5mm vs statutory EBITDA £230.6mm; adjustments £21.9mm equal 8.7% of Adjusted EBITDA. Recurring “exceptionals” around integration, compliance and FX have been frequent. We view a conservative “Clean EBITDA” as follows:
• – Start with statutory EBITDA £230.6mm (includes IFRS‑16).
• – Exclude FX gains/losses and share of associates from EBITDA definition already; do not add back recurring compliance, transformation or restructuring costs given their persistence post-acquisition.
• – Do not include pro forma run-rate synergies that are not yet realized in audited numbers.
• – Clean EBITDA = £230.6mm. This best represents underlying cash earnings power given persistent cost to operate in a high-regulation footprint.
• • Cyclicality: Gaming spend has some discretionary sensitivity; however, online wagering has shown relative resilience. Regulatory tightening (affordability checks, stake limits) has been a larger driver than macro cycles. The group’s UK retail is more macro-sensitive.
• • Litigation and provisions: Elevated regulatory and legal risks. Provisions have historically been material at the enlarged group level post-acquisition. Settlements in 2023 evidence residual tail risk from historical practices.
• • FCF and leverage risk: FY2024 cash flow from operations £226.5mm; capital expenditure £95.4mm; cash interest expense £160.9mm. After interest and capex, implied FCF is negative, underscoring refinancing and deleveraging challenges. Net debt remains high. Balance sheet sustainability hinges on delivering margin expansion and deleveraging while servicing a heavy interest burden.
• • Regulatory risk: High. UK affordability checks, slot stake limits and compliance obligations depress revenue and increase costs. EU markets also continue to refine frameworks. Regulatory changes can quickly alter pricing, product availability and marketing freedoms.
• • Geopolitics/tariffs: Limited direct tariff risk; geopolitical tensions can impact payment providers and FX.
• • Accounting irregularities/fraud risk: No accounting fraud indicated in the provided materials. However, prior compliance control failings (VIP processes) increase governance scrutiny and necessitate robust risk management.
• • Financial distress history: No formal restructuring disclosed. Leverage increased significantly with the 2022 acquisition; the group is now prioritizing deleveraging.

Capital structure:

• • Total gross debt: £1,832.7mm at FY2024 comprised of £1,801.5mm long-term debt and £31.2mm short-term debt. IFRS‑16 lease liabilities are already embedded in reported debt/EBITDA metrics per the instruction context.
• • Net debt and TNL: Cash and equivalents £265.4mm at FY2024. Net debt c.£1,567.3mm. Total Net Leverage on Clean EBITDA c.6.8x; on Adjusted EBITDA c.6.2x. This is elevated versus the <3.5x medium-term target and leaves limited covenant headroom if underperformance persists.
• • Cost of debt: FY2024 finance expenses £160.9mm. The effective interest burden is heavy in relation to EBITA, keeping interest coverage weak.
• • Maturities and refinancing: Short-term maturities of £31.2mm within one year. The group has a revolving credit facility; as of December 31, 2024, a £150mm RCF existed with £85mm drawn, implying £65mm undrawn capacity. High absolute debt necessitates forward refinancing planning amid tighter markets.
• • Contingent liabilities/provisions: Provisions have been significant historically across current and non-current buckets post-combination; ongoing regulatory reviews may necessitate further provisioning.
• • Working capital/supply-chain finance: Not disclosed. The business can see swings in customer deposits and payables due to gaming duty timing and settlement cycles.
• • Total liquidity: FY2024 cash £265.4mm plus estimated undrawn RCF £65mm provides c.£330mm liquidity. Liquidity is adequate near term but sensitive to adverse regulatory or trading events and interest outflows.

Conclusion:

• • FCF outlook: With CFO £226.5mm, capex £95.4mm and finance expense £160.9mm in FY2024, FCF after interest was negative. To restore positive FCF, the company must lift EBITDA meaningfully and/or reduce cash interest through deleveraging or repricing. Management’s plan to expand margins by c.100 bps per year and mix-shift to regulated markets should improve quality, but near-term regulatory headwinds in the UK constrain revenue growth. Absent material EBITDA uplift, deleveraging will be slow.
• • Valuation and capital structure: EV cannot be reliably derived here without market capitalization. Economically, debt is a high share of EV given net debt c.£1.57bn versus Clean EBITDA £230.6mm. Until leverage declines toward the <3.5x target, the equity slice will remain modest relative to EV and valuation multiples will lag peers with stronger balance sheets.
• • Sustainability of structure: Current leverage c.6.8x Clean EBITDA with weak interest coverage is not a sustainable steady-state for a regulated gaming operator. Execution on cost programs, disciplined marketing ROI and regulatory compliance are required to preserve liquidity and work down debt. Any adverse regulatory or trading shocks could pressure covenants and liquidity.
• • Indicative ratings (based on Clean EBITDA metrics and Moody’s/S&P grids):
• – Debt/EBITDA c.6.8x maps to B3–Caa1 territory.
• – EBITA/interest is sub-1.0x on statutory figures, consistent with Caa1–Caa2.
• – Business risk is moderate-to-elevated due to regulation, though scale and brand portfolio are supportive.
• – Our view: Moody’s B3 (negative-to-stable bias if deleveraging execution improves), S&P B- equivalent. A one-notch improvement would require clear, sustained EBITDA growth, stronger interest coverage, and tangible net debt reduction toward the stated <3.5x goal.
• • Bottom line: The franchise breadth and regulated-market focus are strategic positives, but the balance sheet remains the central credit constraint. Delivering margin expansion and debt reduction is essential to re-establish positive post-interest FCF and support a higher, sustainable credit profile. 1H2025 shows some EBITDA recovery, but finance costs continue to dominate earnings; refinancing risk and regulatory changes remain key watch items.