With this in mind, here are a couple of FTSE shares I’d start buying on Monday.

A losing bet… for now

First up is gambling firm 888 (LSE: 888). Having done extremely well during the multiple pandemic-related lockdowns, 888 shares hit the heights of just over 450p almost one year ago. Since then, trading has (inevitably) moderated.

Actually, that’s putting it mildly. A quick glance at the firm’s figures for the first six months of 2022 shows how much the cost-of-living crisis has impacted performance. Total revenue fell 13% to £332.1m. Profit tumbled 66% to £14.4m. Ouch!

Perhaps it’s no wonder the shares have halved in value this year.

Cheap growth share

Despite this, I can’t help but think this might be a contrarian itch worth scratching.

Following the recent acquisition of William Hill’s international assets from US firm Caesars Entertainment, 888 now has a huge opportunity to grow its market share. Moreover, the stock also has a PEG (price/earnings to growth) of just 0.2. That suggests I’d be buying at a seriously low price for the potential on offer.

Obviously, gambling firms are no strangers to headwinds. The ongoing risk of regulation is very much a ‘known unknown’. Competition isn’t exactly thin on the ground either.

Nor do I expect a recovery to be swift. In fact, management believes revenue in the second half of 2022 is likely to be similar to that seen in the first.

So long as I can remain patient, however, I’d feel comfortable buying today.

Post-pandemic loser

A second growth share I’d buy now is AIM-listed music and audio product company Focusrite (LSE: TUNE). Like 888, the business did exceptionally well during the pandemic as musicians and creators took to making content from home.

But purple patches only last so long. As lockdowns eased and normality returned, Focusrite saw demand taper off. Some of this was evident in the firm’s half-year results covering the period to the end of February.

Group revenue of £92.9m was lower than that achieved over the same period a year earlier. And based on the share price action since, it looks like investors are concerned about how the cost-of-living crisis is impacting the company. Focusrite stock is down over 40% in a year and 35% in 2022 alone.

Again, I reckon this may be an excellent opportunity to bag a slice of a high-quality company that consistently generates great returns on the money it invests in the business.

Worse to come?

This is not to say this growth share doesn’t have further to fall. A lot will depend on what Focusrite has to say in its next trading statement, due mid-September, particularly in relation to component supply issues and spiraling freight costs.

On a more optimistic note, a price-to-earnings (P/E) ratio of 18 already looks enticing to me. This is especially if, as the company has suggested, the release of seven new products in H1 looks likely to provide a boost to the full-year numbers.

I think the investment case here remains solid.

The UK government, for instance, is set to announce reforms to the industry very soon. And if rumours are to be believed it could be scary reading for gaming companies. The Times has reported that measures like maximum stakes and the banning of free bets could be introduced.

But despite this danger I believe 888 in particular could be a great dip buy following recent share price weakness.

City analysts think annual earnings here will rise 37% in 2022 and a further 25% next year. These forecasts leave 888 shares looking dirt cheap. They command a sub-1 forward price-to-earnings growth (PEG) ratio of 0.2.

Expanding for growth

As a long-term investor I’m excited by 888’s aggressive expansion programme that could light a fire under earnings growth.

The firm’s in the process of acquiring William Hill, a move that will boost its size between three and four times current levels. It will also significantly bolster its position in Europe and gives 888 one of the most popular brands in the business.

The FTSE 250 firm also has excellent revenues opportunities in the US, a fast-growing market where the business has also been expanding to capitalise on loosening gambling laws.

Research suggests that the global online gambling market will enjoy compound annual growth of 11.7% between now and 2030. Growth in the US is expected to be even stronger in the period at 11.9%. I think internet gambling giant 888 is in great shape to capitalise on this trend.

A falling AIM share

Like 888 Holdings, Begbies Traynor Group (LSE: BEG) has also been extra active on the acquisition front in recent years.

Its commitment to M&A has seen the company significantly broaden its range of services and expand its geographical footprint. This in turn has led to a long record of robust annual earnings growth. And pleasingly, the AIM-quoted insolvency specialist is showing no signs of slowing down. Just last week it sealed the purchase of chartered surveyor Budworth Hardcastle.

A top stock for tough times

Begbies Traynor’s share price has risen strongly in the past four months. This is perhaps no surprise as demand for its insolvency services rises when economic conditions worsen. Yet it’s fallen back a tad more recently and so I’m thinking of jumping in.

Insolvency rates in the UK have ballooned. Latest government data showed a leap of almost 80% year-on-year in May to 1,817. The number is likely to grow still further as the UK economy likely enters a recession.

City analysts think Begbies Traynor’s earnings will grow 8% this financial year (to April 2023) and 3% next year. This leaves it trading on a forward price-to-earnings (P/E) ratio of 14.7 times. In my opinion this is a bargain given the company’s long track record of earnings increases and growing business opportunities.

However, the gains were not sustained and it lost some of its progress on Thursday afternoon. It dipped a further 6% on Friday and 5% in early morning trading on Monday. As I write, the stock sits at 204p a share, down from 244p on Thursday morning.

Why so much volatility?

On Thursday, 888 announced that it had renegotiated a cheaper deal for the acquisition of William Hill’s non-US business from American casino operator Caesars Entertainment. The deal had previously been valued at £2.2bn. The new figure is between £1.95bn and £2.05bn.

The renegotiated price reflects a “change in the macroeconomic and regulatory environment,” with a review of William Hill currently being undertaken by the UK Gambling Commission, 888 said. The announcement sent the share price soaring.

888 performance

Like its peers, 888 experienced a stellar 2020 as the pandemic and several lockdowns saw a surge in online gaming. Revenue in 2020 reached $849m, up from $560m in 2019. The staggering growth appeared unsustainable but revenue grew by 15% to a record $980.1m in 2021. Profits also grew at an impressive rate. The firm said profit before tax surged 205% to $81.3m in the year ended December 31. 

However, 2021 wasn’t all good. Fourth quarter revenue fell 16% as Covid-19 curbs were lifted and policy changes in the Netherlands led to its exit from the market. The fall was largely in line with expectations.

William Hill acquisition

Analysts have been fairly upbeat about the acquisition, which is predicted to quadruple the size of the betting firm. The renegotiated deal and the new financing plan should reduce some of the risk involved in the takeover too. Under the previously agreed terms, 888 was aiming to raise £500m in equity to pay for the deal. Shareholders will vote for the William Hill deal in May, it is understood. The purchase would therefore be closed in June. 

Should I buy?

888 has delivered impressive growth in recent years, partially on the back of extraordinary operating conditions during the pandemic. It can also be considered one of the most profitable companies on the index. Over the past six years, return on capital employed — an important metric for measuring profitability — has averaged 30%.

However, I still don’t think the stock looks overly cheap. At Friday’s closing price, the price-to-earnings ratio was around 14.7. For me this is problematic because I’m concerned about the long-term trends in the gambling sector. There’s certainly a risk that policy changes could force companies to stop certain operations. But I think that’s unlikely given the tax revenue generated by the industry.

I’m more concerned about whether gaming firms can continue to their impressive performance post-pandemic. With no Covid curbs, I’m sure many people will find more enjoyable ways to spend their money.

I’m not buying now but I’ll be keeping an eye on this stock as well as on general trends in the sector.

But 888 Holdings’ sharp jump today is eye-catching not just for this reason. It also follows a six-month slide in its share price. During this time, the stock has halved. But if it starts retracing its steps to its November 2021 highs again, it might just make a good buy now. Whether it can, though, is the question. 

Why is the 888 Holdings share price up?

To answer it, the first step for me is to consider what brought about this jump in the first place. It follows the company’s update from earlier today saying that its acquisition of the non-US business of William Hill will now happen at a lower price. The price has now been reduced to a range of £1.95bn-£2.05bn, down from the £2.2bn pencilled in earlier. 

The company will, as a result, have to raise less equity to finance the deal than earlier envisaged. This is probably the key reason for investor bullishness on the stock, since less equity will now get diluted. Moreover, 888 Holdings posted a stellar set of results for the year 2021 in March, which saw a 500% increase in its earnings, so a sharp share price rise was probably overdue anyway. 

The downside

The company did not pay dividends, however, owing to the spending required for the acquisition of William Hill. For investors hoping for dividend payouts, this could be disappointing. It could also hold the stock’s price back to some degree. 

Also, it is possible that sports betting could come under greater regulation, given its potentially addictive nature. UK authorities are due to release regulatory updates anytime now on the segment. There are similar reports from the US too. This could mean that structural changes are afoot for the industry, which would impact 888 Holdings too. 

The saving grace

At the same time, at present the company’s revenues are derived primarily from online gaming, with sports betting accounting for only 15% of the total. It was also the slower growing segment last year, with growth of only 4.3% while overall revenues grew by over 15%. 

Its valuations are also pretty moderate. The company’s price-to-earnings ratio is below 14 times, which is not terribly pricey for a fast growing one. I think it could make for a good investment. All analysts seem to believe that. In fact many of them even think that the 888 Holdings share price will rise above its all-time highs, seen last November, in the next 12 months. 

What I’d do about the FTSE 250 stock

There is an ethical aspect to buying gambling stocks, though, for me. Until I am convinced that it is well regulated, I will steer clear. Also, I want to dig further into how the acquisition will impact the company’s distribution of revenues between gaming and betting. It would also be important to figure out what it means for its currently very healthy earnings. That will take its time to work through, anyway.

What’s behind today’s rise?

The shares rose as 888 Holdings announced a new financing structure for its now cheaper acquisition of betting competitor William Hill.

In September, the FTSE 250 firm agreed to buy the non-US business of William Hill from American casino operator Caesars Entertainment for £2.2bn. 888 anticipated that it would need to raise around £500m to cover the cost of the deal.

On Thursday, 888 Holdings announced that it had now agreed a new deal to purchase William Hill’s non-US assets. The new figure is between £1.95bn and £2.05bn.

The renegotiated price reflects a “change in the macroeconomic and regulatory environment,” noting a review of William Hill currently being undertaken by the UK Gambling Commission, 888 said.

The new financing plan is considerably scaled back from its previous bid to raise £500m in equity to pay for the deal. It is understood that shareholders will vote for the William Hill deal in May. The purchase would therefore be closed in June.

888’s shares are still considerably lower than when the company announced the deal in September. This is partially due to the fallout of Russia’s invasion of Ukraine as well as the general pullback from gambling stocks post-pandemic.

Last year, analysts suggested the takeover would quadruple 888’s size.

888’s performance

Investing in gambling stocks isn’t for everyone, but the industry can be very profitable. At yesterday’s closing price, the price-to-earnings ratio was around 13.5. This doesn’t mark it out as being particularly cheap. However, other indicators suggest the firm is well run.

Over the past six years, return on capital employed — an important metric for measuring profitability — has averaged 30%. The figure suggests that it is one of the most profitable on its index.

In March, the firm said profit before tax surged 205% to $81.3m in the year ended December 31. 

The company’s long-term strategy makes sense too. It recently announced the sale of its Bingo business to a unit of UK-based Broadway Gaming Group. Instead, the group intends to focus on its core offerings in the US.

888 anticipates further growth in 2022, albeit not at the rates seen in 2020. Profits are likely to be several times higher than they were just half a decade ago.

I’m not buying just yet but this FTSE 250 stock certainly could be an interesting proposition for my portfolio. It also offers an attractive 4.2% dividend yield if I were to buy in at the current price. That’s better than the index average but still less than recent inflation figures.

888 Holdings

Online gambling firm 888 Holdings (LSE: 888) is a stock I once owned and would consider owning again for two reasons.

First, the shares just look too cheap. True, the trading momentum enjoyed by 888 during multiple UK lockdowns is now over (which partly explains the 50%+ fall in the share price in the last year). However, a forward P/E of just nine strikes me as a steal. This is a highly profitable and practically debt-free company. 888 also boasts a strong brand and great growth prospects, especially in the US. If its next update proves even remotely better than expected, we could be in for a nice bounce.

Second, the income stream is worth grabbing. Assuming analysts are right (which, admittedly is a big assumption), the FTSE 250 member will return the equivalent of 11p per share to holders this year. That gives a juicy yield of 5.8% based on the share price as I type. That’s far, far more than I’d get from a Cash ISA or standard savings account. It’s also a lot more than I’d receive from an index fund tracking the UK market.

Naturally, buying individual company stocks carries more risk. This is certainly the case with 888. The annual dividend has actually been increased and cut a number of times in recent years. That could be a red flag for me if I were utterly dependent on shares for covering my living expenses. Further regulation in the industry is another potential headwind. Some investors also seem wary of the recent deal to buy parts of peer William Hill. This would include the latter’s 1,400 UK betting shops (and the not-insignificant costs that come from running them)

Of course, I would never rely on 888 for all my passive income needs. As such, I still reckon there are enough positives here to make this cheap stock a strong contender for a dividend portfolio.

Liontrust Asset Management

Investment manager Liontrust Asset Management (LSE: LION) is a second cheap FTSE dividend share I’d consider buying alongside 888 for the income it offers.

In addition to offering diversification, Liontrust boasts a great track record when it comes to increasing its payouts. For the last few years, the annual payout has been hiked by double-digit percentages.

As things stand, analysts have the FTSE 250 firm returning 64.5p per share for this financial year. That becomes a yield of 5% based on the share price at the close of play yesterday.

Potential negatives to consider here include the cutthroat nature of asset management. The possibility that Liontrust may need to lower its fees to compete with rivals can’t be overlooked. This would lower earnings, potentially causing trouble for the dividend. Through no fault of their own, even the most successful firms in this space can also suffer if geopolitical events conspire to push frightened savers to withdraw their money.

On a more comforting note, Liontrust’s dividend looks set to be easily covered by profits this year. A cheap valuation (11 times earnings) also helps mitigate some risk.

No investment is perfect, but the £800m cap ticks a lot of my boxes.

My targets are companies to add to my portfolio that exhibit the qualities of robust businesses. This means I am looking for corporations with strong balance sheets and competitive advantages, which should help them navigate any economic challenges in the foreseeable future.

There are a handful of these corporations in the index. Two companies really stand out to me as being undervalued compared to their potential right now. I would buy both for my portfolio and hold them for the next decade as they double down on their competitive advantages and growth. 

FTSE 250 growth

The first company on my list is the online gambling operator 888 Holdings (LSE: 888). 

This company is the sort of business that splits opinions. Investing in gambling establishments is not going to be everyone’s cup of tea, but these businesses can be incredibly profitable. The industry is also experiencing a bit of a growth spurt as online activity increases. 

Despite the attractive qualities of the sector, there are plenty of challenges these companies may have to encounter going forward.

For example,  the sector is incredibly competitive, and it is only becoming more so. On top of this, the industry is highly regulated. Regulators are always bringing in new rules and regulations to try and stop companies taking advantage of consumers.

This is not going to change any time soon. Companies will need to learn to live with these rules even if they mean higher costs and lower profits. 

One of the best shares to buy

Still, ethical considerations aside, the FTSE 250 company does have some incredibly desirable qualities. Its return on capital employed, a key measure of profitability for every £1 invested in the business, has averaged 30% over the past six years. That puts the business in the top 15% of the most profitable enterprises on the London market. 

Management has used the company’s profits sensibly to expand organically and through acquisitions over the past couple of years. According to City analysts, the group will report nearly $100m of profits for the 2021 financial year.

Further growth is projected for 2022. According to current projections, the corporation will earn a net profit of $140m in the 2022 financial year. By comparison, for 2015, the company earned a net profit of just $30m. 

Rapid growth

These numbers illustrate how rapidly the FTSE 250 company has expanded over the past couple of years. It has been able to achieve this growth even with the challenges outlined above. 

Of course, projections for growth over the next two years are just that, projections. There is no guarantee the firm will hit these targets. A lot could change over the next couple of years, and a new regulatory requirement could mean high costs for the business.

Nevertheless, I think the numbers illustrate the company’s potential. Its substantial return on investment also suggests to me that the enterprise will have the financial resources to take on any threats it may encounter. 

Undervalued FTSE 250 stock

Despite the company’s attractive qualities, at the time of writing, the FTSE 250 stock is trading at a forward price-to-earnings (P/E) multiple of just 9. I think that undervalues its potential and does not take into account the organisation’s efficient operations. On top of this, the stock offers a dividend yield of 5.8%. 

With the potential for income and capital growth over the next couple of years, I would be happy to add 888 to my portfolio today. 

Massive market potential

Wealth management is one of the biggest industries in the UK.

As the country’s population grows and becomes wealthier, it seems likely the demand for these services will only expand. However, many publicly listed wealth management companies are currently trading at relatively cheap valuations compared to their growth potential over the next couple of years. 

The FTSE 250 wealth manager Quilter (LSE: QLT) is a great example. 

The company recently published its full-year results for 2021, which show the scale of the opportunity on offer. Last year, the group achieved net investment inflows of £4bn.

Assets under management and administration increased by 13% to £112bn. With assets under administration expanding, the company’s management fees also expanded. Adjusted profit before tax increased by 28%.

Over the past year, management has been streamlining the enterprise.

FTSE 250 reorganisation

It has been divesting non-core businesses and doubling down on the areas where it has a competitive edge. The company has been investing more in its asset management platform and recently divested Quilter International for £481m.

The organisation is planning to return the bulk of these proceeds to investors with a special dividend of 20p per share. The rest of the money will be reinvested back into the corporation to drive growth. 

Unfortunately, the FTSE 250 company cannot take its position in the market for granted. The wealth management industry is incredibly competitive, and Quilter needs to keep spending and investing in its product to maintain and build consumers’ trust. 

Challenges ahead

The biggest challenge the group may face as we advance is competition, but it could also face pressure from regulators. Every financial services company has to deal with regulators’ demands, which can significantly increase costs. These additional costs could hit profit margins and hurt growth. 

Even after taking these risks and challenges into account, I think the FTSE 250 stock has tremendous growth potential over the next few years. I am also encouraged by management’s cash return plans. It looks as if they are focused on rewarding shareholders as well as growing the business.

The recently announced special dividend will provide a yield of around 17% on the current share price. I think further cash returns are also likely in the future as the company continues to invest in its offering. With assets under management expanding, it is clearly offering something consumers want to be part of. 

Lockdown beneficiary

In retrospect, the time to pick up stock in online casino and gaming operator 888 Holdings (LSE: 888) was just before Boris Johnson announced the first national lockdown. Back then, the share price was around 80p. A couple of months ago, 888 achieved a 52-week high of 494p. 

Unfortunately, I didn’t act on my own bullish call in 2020, due to the sheer number of attractively-priced options out there during the market crash. Even so, I’d still be prepared to buy now, especially as 888’s valuation has now fallen back below the 300p mark.  

Aside from general market skittishness, some old-fashioned profit-taking is probably behind this selling pressure. Some investors may have taken the 15% reduction in business-to-consumer betting revenue in Q3 as a sign that trading momentum is now slowing. A more likely catalyst, however, is the recent legal shake-up in the Netherlands that requires online betting firms to obtain a licence. In response, 888 has ceased to operate there — a decision that’s expected to hit profit by $10m. 

I’d snap up this cheap UK share

Since this is a temporary measure, I think the fall may be overdone. Shares in 888 now trade at just 14 times forecast FY22 earnings. That looks great value, considering 888’s agreement to buy William Hill’s non-US assets could put a rocket under profits in time. What’s more, the stock comes with a potential 12p per share dividend next year (or 4.1% yield at the current share price).

All this before we’ve even considered the increase in business 888 could see if there’s a fourth national lockdown.

Buy the dip?

Another cheap UK share I’m interested in buying would be commercial and domestic lighting firm Luceco (LSE: LUCE). Despite staging a brief comeback in November, shares in the mid-cap were back to 337p by last Friday. That’s a significant drop from the 52-week high of 513p it hit back in September. 

This fall leaves Luceco’s forecast P/E at a little under 16. This may not look like a screaming bargain initially. However, this number should never be looked at in isolation, especially if the company scores well on quality metrics.

While past performance is definitely no guide to the future, Luceco has long generated high returns on invested capital. It’s this, according to UK top fund managers like Terry Smith, that plays a significant role in great long-term returns. Luceco could therefore prove to be a steal at current levels.

I must emphasise the word could here. There is a chance that recent cost pressures may not peak in early 2022 as the company expects. The fact that less than half of the company is available to buy on the market (i.e. a low ‘free float’) may also mean the share price lurches rather than drifts lower.

Still, I’m not concerned with trying to time the market exactly. What’s more important to me is buying a decent business at a sane price and holding on. I remain bullish on Luceco.

FTSE 250 gaming giant

888 Holdings is one of the world’s largest online betting and gaming firms. It operates via two channels. The first is B2C, which includes its own brands such as 888 Sport, 888 Poker, and 888Bingo to name a few. These platforms offer the public the opportunity to play casino games and place bets on sporting events. The second channel is the B2B aspect of the firm. This is where it produces proprietary technology for partners to use through its Dragonfish brand.

As I write, shares are trading for 360p. A year ago, shares were trading for 252p, which is an impressive return of 42%. Shares in 888 are currently trading close to all-time highs and have surpassed pre-crash levels of close to 140p by some distance.

The pandemic left many people looking for new pastimes and habits. Online gaming was one thing many turned to which benefited firms like 888. So should I look to add shares in this burgeoning firm?

For and against

FOR: 888 has a good historic track record of performance. I understand historic performance is not a guarantee of the future but I use it as a gauge when reviewing investment viability. I can see revenue has increased year on year for the past three years and gross profit for the past two years. The FTSE 250 incumbent’s Q3 trading was excellent too, looking at more recent information. Revenue rose by 7% compared to the same period last year. Year-to-date revenue stands 28% higher compared to year-to-date levels in 2020.

AGAINST: The issue with online gaming and betting is the ever-looming threat of tighter and increased regulation. In fact, 888 has been affected by this in the past. Dutch authorities introduced new regulation that required a betting license. 888 decided to remove itself from the Dutch market but will look to relaunch. This is an ongoing threat that can affect firms like 888.

FOR: One thing I really like about 888 is the fact it is growing rapidly. It does this organically and through acquisitions. For example, in its Q3 update, it confirmed the acquisition of William Hill International. It also launched a new brand in Colorado and 888sport in Germany. All of this activity is exciting and shows growth plans and ambition. This growth could result in increased shareholder returns in the future.

AGAINST: 888 shares are trading close to all-time highs. In fact, they have never come close to recent levels. This is a bit of a worry for a potential investor. Any negative news or downturn in earnings, that could occur if pent up demand and new users fade away post-pandemic, could hurt the share price and any potential returns.

My verdict

Right now I would be willing to add 888 shares to my portfolio. I am excited by its growth trajectory and the fact the market seems to be growing overall and has a robust balance sheet to support it. New customers since the pandemic have benefitted 888 and I believe this new wave of users is here to stay.