Fervent M&A Talk Accompanies Upbeat First Half from Playtech

3 September 2008

Playtech Ltd. this morning revealed adjusted net profits of $57.8 million for the first half of the 2008 fiscal year, up 90 percent against the comparable period last year.

Total revenue rose 85 percent to $81.4 million, with casino and poker coming in at $58 million and $22 million -- up 78 percent and 109 percent respectively versus the previous-year period.

Much discussed during today's conference with analysts and investors was the company's planned acquisition of one of its affiliates, due diligence on which commenced this year.

Mor Weizer, the company's chief executive, said that while Playtech has designs on acquiring the affiliate, looking ahead, it is open to snatching up other of its affiliates -- all but one of which are ultimately controlled by Teddy Sagi, Playtech's founder and largest beneficial shareholder.

"Eventually, the idea is to exercise all the options," he said. "Therefore, we will be able to provide a full turnkey solution, and this is why we intend to do this eventually."

While the company has not disclosed a price tag for its affiliate, financial sources have suggested to IGamingNews the cost could fall between $75 million and $80 million.

Richard Carter, an analyst with Numis Securities in London, has proposed that the company will acquire its marketing affiliate -- and though the jury is still out, analysts across the online gambling community view the acquisition as a potential share-price catalyst.

"[Playtech] has a call option to acquire this income stream at c.5.5x EBIT, and we estimate that were Playtech to acquire the business on such an attractive multiple, it could lead to an uplift in the share price of over 20%," Mr. Carter wrote in a research note last month.

"We believe the key catalyst going forward will be the acquisition of an affiliate company, which we expect to be earnings enhancing," echoed Ben O'Toole, an analyst with Dresdner Kleinwort in London, in a research note this morning.

Regarding a move to London's Main Market, the company's chief financial officer, Guy Emodi, said: "We do intend to move, but first, I think we want to make some progress on our acquisitions, and then we'll make the move."

"We're delighted to be on AIM," said Roger D. Withers, the company's non-executive chairman, "but the fact is that we're taking all the necessary steps to allow us to move -- if that would seem the best thing to do at the time."

With regard to current trading -- metrics for which the company did not provide -- Mr. Emodi said that growth was unchanged versus the previous quarter.

"It's a quiet period -- everybody knows that," he said, "and we didn't see any growth in these two months (July and August) compared to the previous quarter. However, this is an encouraging outcome; the fact that we didn't experience any decline is encouraging."

The company currently maintains a portfolio of 60 licensees, 53 of which are active. Bullish as ever on contract wins, Mr. Weizer indicated that two licensees -- one from CryptoLogic Ltd., the other, Microgaming Software Systems Ltd. -- had migrated to Playtech's platform.

The identities of the licensees, however, were not disclosed.

The company, with a market capitalization of £1.29 billion, was up 6.50 pence, or 1.21 percent, to 541.50 pence.

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