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Playtech: Show us the cash


During April of this year, software company Playtech  (LON:PTEC) completed the sale of its William Hill Online stake for over £423 million.  The issue now is how this windfall is split between acquisitions, investments and a capital returns to shareholders.



It hasn’t always been plain sailing for Playtech, which was introduced into the Fat Prophets portfolio in 2011.  In teh same year, sentiment towards the shares took a knock after a surprise capital raising - resulting in an increase in the founder’s stake – as well as a cut in the dividend.  However, the cash position has now turned following the sale of William Hill Online which produced a 3.5X return on investment.

The key risk now, though, is similar to early 2011 in that investors aren’t certain which strategic direction Playtech will move next.  On past history the group is likely to be growth focused and so use much of the proceeds for acquisitions or investment.  

Previous deals have come off for Playtech but did increase the group’s risk to reward profile.  The most significant recent deal was PT Turnkey Services (PTTS) which was for €140m in March 2011 with a further €140m payment dependent on its success. 

In 2012 PTTS drove the majority of the group’s revenue growth and along with other acquisitions performed well. Thus while the William Hill windfall can be largely expected to be spent on growth we are optimistic given Playtech’s recent track record.

Playtech’s recently released Q1 results were solid.  In our view, the 16% uplift in gross income and total revenue during the quarter on a year ago is still positive.  The company continues to benefit from having a diversified base of online gaming exposures.  Thus growth elsewhere offset declines in Poker revenue and Videobet revenue.

Geographically, the first quarter was also driven by the Asia Pacific which saw 39% year-on-year growth and 8% growth on Q4 2012.  As such Asia Pacific became 28% of total revenue which compares to 24% a year ago.

The interim management statement also highlighted the launch of Betfair on Playtech bingo and the migration of Paddy Power’s live Casino to Playtech.  Launches included Betfred’s mobile casino and the launch of Playtech’s live gaming offering in Spain.

That these are bluechip names in the gaming world is reassuring and shows that Playtech continues to attract strong support.  Online gaming companies have been a bumpy ride but a software provider like Playtech is focused on providing the “picks and shovels” through software licenses.

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