Interactive Investor

Playtech payout takes shares to all-time high

25th August 2016 12:38

Harriet Mann from interactive investor

Investors are set to receive a tasty windfall from Playtech after the gaming software firm announced a €150 million (£128 million) special dividend in a set of promising full-year results. Strong currency headwinds proved too much for the group this time round, but there has been momentum behind the scenes and the shares reached all-time highs Thursday.

Investors will receive the €150 million - 46 cents a share - in December, in addition to a 15% boost to their interim dividend to 11 cents, taking the total pay-out to 57 cents - 50p at current exchange rates. The management team have also announced a "progressive" pay-out policy.

"We are pleased to announce the adoption of a progressive dividend policy, reflecting our confidence in the group's anticipated growth and cash generation," says chairman Alan Jackson.

"We are also pleased to announce the return of €150 million to shareholders through a special dividend with no impact on our Mergers and Acquisitions (M&A) capabilities, enabled by our high cash balances and strong cash generation, whilst maintaining an efficient and flexible balance sheet."

Currency headwinds

Revenue growth of 18% to €337.7 million was weighed down by currency headwinds in the first half, which also caused reported net profit to crash 42% to €48.8 million.

Adapted to mitigate the translation effect, adjusted net profit and adjusted earnings per share (EPS) actually rose by 54% and 40% respectively, reflecting the success of its recent cost-cutting programme. Operating profit surged by over a quarter to €143.8 million.

Driven by its flagship Casino offering, the core gaming division performed pretty well with contribution from both new and existing licences and joint tie-ups. Locking in medium-term growth, new licenses have been secured with PokerStars and SunBets and a new omni-channel deal has been signed with Fortuna to provide Sports and Casino services to Czech Republic, Poland and Slovakia. Its pipeline of new licensees and agreements is looking full, too.

With over half of UK revenues coming from mobile, its omni-channel investment is paying off here - although this accounts for just 29% of sales across the group. Current trading is also promising, with average daily gaming revenue for the first 55 days of the third quarter by 12% on the comparative period.

Crucial changes to the regulatory landscape have forced a transition within its financials division and the group acquired Markets Limited last year. Reflecting the "full impact" of these changes, revenue fell to €31.3 million from €43.2 million and adjusted cash profit of €5.9 million, below forecasts.

Still, management are confident the business now has the right platform for sustainable growth and there is now momentum behind the B2B business, which has a good pipeline ahead of it.

Active M&A growth strategy

The group had €778 million of cash at the end of the period, which will be around €640 million after acquiring 90% of BTG for €138 million in July. Management have continued its active M&A growth strategy and bought Quickspin for €24 million in May, beefing up its Gaming division. With its interest in Ladbrokes and Plus500 worth around €290 million, Investec reckons the group's gross liquid assets total around €750 million.

Upgrading cash profit forecasts by 6/5% to €304 million for 2016 and €266.8 million for 2017, Investec is pencilling in revenue of €741.3 million, pre-tax profit of €236.2 million and EPS of 65.5 cents this year. However, strong currency headwinds in the second half could disrupt this growth.

Shooting up 4% in morning trading, Playtech's shares have now broken out of the trading channel that has underpinned bullish momentum this year. The shares tested all-time highs of 945p Thursday before easing back below resistance to 938p, reflecting a solid recovery to levels seen this time last year. The shares trade on an undemanding 14 times forward earnings, with a knock-out dividend yield of 8%.

With acquisition a key upgrade catalyst going forward, Investec analyst Alistair Ross has upgraded his target price to 1,111p, which represents 19% upside and justifies his 'buy' recommendation.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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