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FTSE 100-listed gambling provider 888 Holdings is undervalued, according to analysts at investment bank Berenberg.

"Underlying quality not reflected in valuation," says Benjamin Sandland-Taylor, an analyst at Berenberg Bank, having assessed 888's most recent trading update.

Revenues beat expectations, even as the company continues to undergo an overhaul related to the acquisition of William Hill, but the share price remains locked below its February 2024 highs at 97.40.

"For all the positives, it's not all shipshape. Leverage remains eye-wateringly high, and reducing that remains a priority," says Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

888 reported revenue of £431M in the first quarter, slightly ahead of the £420-430M guidance range previously outlined at the full-year 2023 results.

"The overarching risk for any gambling company is its ability to handle the regulatory environment. The lens is rightly focused on customer care for these names, and there is no room to fall short. 888’s valuation has taken a knock as it’s worked through various issues, and there could be room for upside in the short to medium term, especially as leverage comes down to more sensible levels," says Lund-Yates.

888 Holdings was hit with a £9.4m fine in March 2022 after a Gambling Commission investigation revealed social responsibility and money laundering failings. "The fine was one of the largest ever issued by UK authorities," says Aidan Howe, the chief editor at bestcasinosites.net. "Operators in the UK are required to keep customers safe and carry out checks to ensure money is crime-free."

Nevertheless, Berenberg says it holds the stock at a Buy rating as revenues are expected to soon reflect the synergies presented by the William Hill acquisition. "We believe that 888 now has a higher-quality, more sustainable revenue base than in previous years, and looking into the medium term, we view recently announced mid-term targets as achievable. We reiterate our Buy rating and 130p price target," says Sandland-Taylor.

888 said a new strategy would see it deliver a medium-term target for 5-9% revenue growth per year and that it aimed to deleverage debt exposure to below 3.5x EBITDA by the end of the 2026 financial year.

"Revenue growth at the midpoint of this range would imply adjusted EBITDA ahead of current consensus estimates and we believe these targets are achievable," says Sandland-Taylor.

Berenberg's price target on 888 Holdings stands at £130/share.