Playtech has had more ups and downs than a veteran gambler. The company, founded by the Israeli entrepreneur Teddy Sagi, makes the tech that runs online gambling for betting companies, national lotteries and others. You won’t see the brand around as it works business-to-business behind the scenes for other brands.
Until last week, it also operated in financial dealing with a business called Finalto, which runs the trading of contracts for difference (CFDs) and other products. On Wednesday, after two years of hawking it around the market, Playtech found a buyer for Finalto for $250 million (£185 million).
The deal brings in some cash and removes what was something of a sponge on its balance sheet as financial betting requires hefty capital.
Playtech has had some duff years of late, dragged down by poor performances in Asia and Italy and a succession saga over the chairmanship, but it is clearly on the turn and now has former 888 chief Brian Mattingley in the post. He’s an experienced hand, albeit having blotted his CV at the collapsed Football Index.
Most promising at Playtech is its focus on lucrative contracts in gaming-mad Latin America. Under these contracts, Playtech gets a share of the revenues, service fees and profits, which can be in the form of share options in the client. In the past half year, those options alone rose in value by £255 million.
Half-year figures recently showed its Americas revenues doubling, and that is before the slew of new customers it is signing up.
Italy, where Playtech is a bookie direct to the public under the Snai brand, also looks set fair for a turnaround. Betting shop closures during Covid were painful but the pandemic got more Italians shifting online, where margins are higher. Every cloud . . .
Neither its Americas nor Italian divisions are correctly reflected in the shares, which Bank of America Securities reckons should be 570p rather than the current 476p, valuing it at £1.46 billion.
Bears argue Playtech is at risk of losing revenues as its big gambling company clients merge. This happened when GVC bought Ladbrokes and put more of its own tech in rather than Playtech’s. But that appears the exception to the rule, with other mergers resulting in more business for the company.
Playtech doesn’t warrant the go-go valuations being given to gaming companies with big operations in the US, where deregulation is generating seriously big profits. It remains fairly small there. But neither does it deserve to be valued at just seven times this year’s profits. Buy.
