Hills Online Helps Playtech but Underlying Growth Slows

During the first quarter, Playtech Ltd. was helped at the top line by its new joint venture with William Hill, but slowing underlying growth had analysts concerned.

The venture, called William Hill Online, generated income of 7.2 million euros during its first quarter of operation. It took shape in October 2008, when Playtech transferred a number of gaming assets to William Hill in exchange for a 29 percent stake.

Playtech said gross income -- which consists of licensee royalties and profits generated by its share of venture -- came in at 36 million euros, up 14 percent, sequentially.

Ebitda margins exceeded 83 percent -- reflecting the higher margin contribution from William Hill Online -- and net cash rose 21.4 million euros to 53 million euros.

During the quarter, William Hill Online was active for 13 days, and royalty revenue was derived from poker activities, exclusively.

Total group revenue, meanwhile, came in at 28.1 million euros, down 10 percent versus the previous quarter. But on a pro-forma basis, group revenue was down 1 percent over the preceding quarter, with a 7 percent rise in poker offset by a 6 percent decline in casino.

In an April 29 note to clients, William Birch, an analyst with Jefferies International Ltd., projected Playtech's first-quarter revenue would be softer because its licensees were experiencing downward pressure on consumer spend.

However, revenue was also hit by temporary downtime at one licensee, Mr. Birch said. That licensee, previously of Playtech, was transferred to -- and now forms part of -- William Hill Online.

Playtech's shares gave up 5.6 percent Wednesday as analysts with Numis Securities and Evolution Securities called the results "slightly confusing" and "fact lite," respectively.

"In a maturing online gaming market it should be no surprise that Playtech’s underlying growth has slowed, but it is something of a surprise that it has gone into decline," Ivor Jones of Evolution Securities said in a note to clients.

The company said April trading was "positive," and that gross income, on an average daily basis, had risen 5 percent versus the whole of the first quarter.