AIM listed tech company Playtech (LSE:PTEC) released its half-year results yesterday. Covid-19 has affected some of its business, while other areas have proven resilient. Nevertheless, I think Playtech has a bright future ahead. Its cutting-edge gambling software is gaining ground, and with the gaming sector booming like never before, I think it’s well placed to cash in on this.
Why are Playtech shares falling?
For the six months ended June 30 revenue was down 22% and EBITDA down 15%. This was mainly due to cancelled sporting events and the closure of high-street bookies.
Playtech operates throughout the world so has had to adapt to varying degrees of disruption. In the Philippines, which is experiencing the longest lockdown in the world, it closed its Manila facility. In response to this dilemma, the company has revised its structure in the region, altered contracts and added a second distributor. Meanwhile, in Italy it operates Snaitech, a retail and online sports gambling and gaming company. This didn’t fare too well in H1, but still achieved the number one market share position in the Italian sports betting market.
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The Playtech share price remains down 9% year-to-date, despite recovering from the March market crash to near pre-crash highs.
Cashing in on financial trading
TradeTech is Playtech’s financial division, providing clients with software solutions for trading in the financial markets. This division has done particularly well this year and adjusted earnings rose by 544% to around £48m.
However, last month it confirmed it’s considering selling this part of the business. This may seem a strange move when the business is doing so well, but I think it could be a case of perfect timing. There’s no doubt the pandemic gave a significant lift to financial trading in the first half of the year, with many retail investors at home on full pay. This is unlikely to repeat and is a volatile sector, prone to boom and bust cycles. The FTSE 250 business has confirmed it doesn’t expect TradeTech’s impressive performance to continue as the market appears to be stabilising.
Playtech also made £176m selling its 10% stake in Plus500 earlier this month. It cancelled its dividend in March and doesn’t intend to return proceeds to shareholders soon. Rather than prematurely rewarding shareholders, I think it’s sensible to reinvest any profits into the business to help it grow. That’s because growth in the business should strengthen the Playtech share price.
Wide geographical reach
To grow, it’s looking to the US and Latin America. It recently won contracts in Costa Rica and Guatemala and sees the US as a tremendous opportunity, because by 2023, it’s expected to be a $24bn market. In its quest to become the world leader in gambling software, Playtech is chasing opportunities in the states that make the most commercial sense. To implement them will take time and additional resources because US states differ in their regulatory approach to gambling. But that’s not to say it can’t be done.
There are plenty of opportunities, but the pandemic is undoubtedly slowing progress. The company operates a flexible business model, which benefits both clients and its bottom line. Its price-to-earnings ratio is 9 and earnings per share are 37p. As a long-term investment, I would consider adding Playtech shares to my Stocks and Shares ISA.
