Bulls, Bears Weigh In on Playtech's Fourth-Quarter Performance

22 January 2009
On Playtech Ltd.'s fourth-quarter trading update Thursday, London's analysts brought to attention both the company's propensity for growth and the largely obscure drivers underlying it.

Playtech, which went public in March 2006, has outpaced other listed software suppliers since the Unlawful Internet Gambling Enforcement Act took effect in October 2006. Management's aggressive acquisition of licensees -- it maintains a stable of over 60, now -- helped it grow revenue profitably by 89 percent in the 2006 fiscal year, and 86 percent in 2007.

Amid difficult trading conditions for the industry in 2008, the company again grew revenue by 70 percent, year over year, to 111.5 million euros. Fourth-quarter revenue, it said, was up 52 percent to 31.5 million euros versus the same period last year. Quarterly income from casino, 22.1 million euros, rose 52 percent against 2007, while poker, 8.5 million euros, also grew 52 percent.

"On the upside, the management team is strong, so I would continue to expect them to read the market well," Simon J. Holliday, the director of H2 Gambling Capital, told IGamingNews Thursday. "On the downside, there is always the difficulty of managing so many licensees and maintaining such strong momentum over time."

Mor Weizer, the company's chief executive, told eGaming Review Thursday he expects the combination of its existing licensees, further regulation and ongoing discussions with prospective licensees to keep that momentum alive in 2009.

With shares hovering near a yearly low in December, value has risen -- in spurts -- in January, and Richard Carter, an analyst with Numis Securities, thinks Thursday's update should offer reassurance to investors.

"Despite the shares bouncing off lows, we think Playtech's valuation remains compelling at a [price-to-earnings ratio] of 8.4x to Dec 2009F," he said in a note to clients.

James Hollins of Daniel Stewart & Company, who, like Mr. Carter, is bullish on Playtech, highlighted the completion of the company's deal with William Hill this month and the launch of its Italian poker network -- for real money -- in December.

Playtech said that the Italian network -- whose licensees include some of the country's largest operators like Snai S.p.A. and Sisal S.p.A. -- has proven revenue-enhancing and is exceeding expectations.

"This ability to capture strong market share in a large and regulated market represents a sound strategic move by Playtech," Mr. Hollins said in a note. In September, Mr. Carter estimated that Playtech controlled around 60 percent of Italy's online poker market.

Ivor Jones of Evolution Securities maintained his bearish stance, and in a note Thursday explained that the company's revenue stream is subject to the performance of businesses on which investors have little visibility. He also said that Playtech is facing increasing competition from online gaming operators -- like 888 Holdings -- "which want to offer software and services to Playtech's potential customers."

Looking ahead, Mr. Holliday said, however, that if William Hill and Playtech "hit it off," he believes the company's forecasts for 2009 will prove to be conservative.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.