Morgan Stanley sees 50% upside at 'software not gambling company' Playtech

Morgan Stanley set a 1,170p price target for Playtech, offering around 50% upside from current levels, as the FTSE 250 outfit is "a software company not a gambling company".

Playtech, which provides back-end support for gambling companies, creates gaming software content, takes 86% of revenues are derived from revenue-share fees.

"We benchmark the company to the software peer group, and conclude that the shares warrant a significant re-rating in-line with software peers," Morgan Stanley said.

Analysts observed that with 35% revenue compound annual growth the company is among the fastest growing businesses in the technology sector and growing far faster than the gambling sector, with more than 80% of revenues also recurring.

Margins are much closer to the technology peer group, well above gambling operators, while cash conversion benefits from most of its development costs being expensed.

Concerns about corporate governance and competition were largely dismissed by analysts, who also highlighted than no value seemed to be attributed to the Asian facing business.

"Playtech is the market-leading online gambling supplier, taking market share in a high-growth end market," they added, arguing that its strong growth and cash generation are not reflected in its valuation.