Recommendations » UK

Playtech (LON:PTEC) report: Strong margin, current trading and outlook

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- Playtech has reported FY09A results ahead of our expectations and current trading is stated to be strong. With group margin and current revenue above expectations, we continue to advocate Playtech as the strongest investment exposure to the global online gambling market and retain our Key Buy recommendation.

- Playtech has reported FY09A gross income of ?137.3m (+23%, as previously reported), with EBITDA of ?93.7m (+25% YoY), ahead of our top-end ?92.8m estimate.

- Net profit came in at ?69.5m (+71% and above our ?68.1m forecast), with diluted clean EPS of 36.1c against our 34.1c estimate (6% outperformance).

- Critically, current trading is strong, showing LFL QoQ growth in revenue of +8% against Q4 2009 (+18% including acquisitions), with ‘all products performing in line with or ahead of budget’.

- This is a very encouraging statement, both on Q4 2009 margin and current trading. We see no reason to adjust our top-end FY10E estimates.

- Further, compounding the strong trading, we remain aggressively bullish on the group’s recent strategic and acquisitive initiatives, principally encompassing the acquisitions of GTS and Virtue Fusion (essentially driving market leading positions and expanded client bases across both non-download casino games and bingo at a stroke), as well as the joint venture with Scientific Games, providing immediate scale for its Videobet division and optionality on the potential regulation of the US market.

- In our opinion, the three key investment case drivers of current trading, margin performance and group strategy/outlook are all exactly as we would hope for from a firmly bullish standpoint.

- On top of the strategic initiatives, we expect continued solid organic growth across all product verticals, with expected geographic expansion and monetisation of liberalising markets such as Italy where potentially highly ucrative new product is expected in H1 2010, including poker cash games and casino.

- On this basis, with unchanged forecasts (group is trading at 13.4x FY10E EPS, 11.1x EV/EBITDA, 3.9% dividend yield), we retain our 625p price target and Key Buy recommendation.