Gambling software developer Playtech [LON: PTEC], the world’s leading multi-channel gaming software and services supplier, has announced the placement of €297m of senior, unsecured convertible bonds due in 2019. The move is in line with the board’s declared strategy to pursue an aggressive acquisitive strategy.
Playtech’s announcement, made on November 12th, came just minutes after Credit Suisse downgraded its recommendation for the company from ‘neutral’ to ‘underperform’. Previously (on November 7th) JP Morgan Cazenove had likewise downgraded its recommendation on the stock to ‘neutral’ from ‘overweight’.
Concerns over possible unfavourable changes in regulatory conditions in Malaysia are common to both analysts’ assessment. The Malaysian government is believed to be about to prohibit online gaming, a move estimated to impact Playtech’s earnings by 10%-15%.
Additional concerns over the quality of earnings and the lack of a share buyback were cited by Credit Suisse as the rationale for their change in recommendation. It put a target price on Playtech stock of 580p, down from 780p.
Playtech stock had been hit as the market took a dim view of the company’s unwillingness to offer share buy-back despite shares having de-rated 25% over the past 12 months. Credit Suisse’s statement described this reluctance in critical terms, suggesting management’s interests were not ‘truly aligned with those of the shareholders’.
Validating Playtech’s bond issue and the potential for M &A which is affords, JP Morgan Cazenove had earlier made a point of highlighting material scope for upgrades from potential new partnerships in Mexico and Italy.
Playtech’s board are far from having lost the confidence of the market. For example, Peel Hunt’s Nick Batram told the Guardian that he was keeping his buy recommendation, explaining:
“News that Playtech is launching a bond issue is, in our opinion, a clear sign that a major acquisition is far more likely than any further special dividends or share buybacks. Obviously it depends on what the group buys and how much it pays, but the acquisition track record is impressive.”
Playtech operates in 12 different countries or territories and employs approximately 3,600 staff. It currently has licencing and partnership agreements with over 120 branded providers including Betfair, bet365, Titanbet Poker, William Hill, Paddy Power and Sky and government sponsored entities such as the Serbian state lottery www.lutrija.rs.
Between 2009 and 2013 the company declared a gross profit increase from €137.3m to €385.3m. Over the same period it declared an increase in adjusted profits rising from €89.4m to €166.4m.
Playtech has recently taken steps to consolidate its position by means of large scale vertical acquisitions. Significant amongst these are the $49.2 million acquisition of leading poker brand @PokerStrategy.com in July 2013 – one of the world’s largest poker communities with over 7,000,000 members – and the €10.5 million acquisition of the Swedish-based Aristocrat Lotteries in September 2014.
Playtech produced its best ever third quarter returns in October, announcing total revenues for the period of €116.5 million, an annual increase of 28.6%. At the time Chief Executive Officer Mor Weizer, commented: “The strong growth seen through the first half continued through the third quarter resulting in the strongest-ever quarterly performance, driven by our flagship casino, including Mobile and Live, sport betting, land-based revenue and services.
“During the quarter we launched innovative live casino offerings for both Skybet and RAY, along with a powerful web and mobile sport offering for the newly launched GazzaBet website for RCS Media in Italy. This represents the first phase of a full turnkey solution, and we expect to launch casino and mobile casino in due course.
“We started to deliver on our turnkey strategy with three licensees moving their UK-facing activity to the Playtech white label structure, strengthening our position as a key provider and demonstrating the financial and operational benefits that can be achieved by using our turnkey offering.
“Looking ahead, the management team is confident of exceeding current market expectations for the full year.”