Broker tips: Playtech, Aldermore, Shawbrook, Just Eat

In the six months to the end of June, revenues rose to €337.7m from €286m, up 18% or 24% at constant currency. However, net profit declined to €48.8m from €83.9m, down 42% on a reported basis, but up 84% at constant currency, taking a hit from fluctuations in sterling.

The company declared a special dividend of €150m, or 46 cents per share to be paid in December and lifted its interim dividend by 15% to 11 cents per share.

The gaming division generated revenue of €306.4m, up from €275.4m in the first half of 2015, while the financials division saw revenue of €31.3m compared to €10.6m.

Canaccord said Playtech delivered “another impressive set of results, comfortably ahead of forecasts” and views the shares as the “stand-out value play in the online gaming sector”.

The broker said trading remains strong in the second half with revenues in gaming up 12% so far in the third quarter. The company will also benefit from the acquisition of Best Gaming Technology last month as well as incremental cost savings in financial trading and services, Canaccord said.

Canaccord lowered its estimate on group revenues for 2016 to €741.5m from a prior estimate of €746.7m due to lower sales at the financial trading division. However it raised its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast to €305.7m from €302.5m, despite Brexit foreign exchange headwinds, driving normalised earnings per share up 2% to 72.0 cents from 70.9 cents.

“Playtech has continued to outperform the UK MidCap market (up 8% year-to-date), but still looks particularly cheap on an estimated fiscal year 2017 enterprise value /EBTIDA of 9.5x (after adjusting for the special dividend) and a cash adjusted price-earnings ratio of 11.0x.

“We think this looks too low for a technology leader, particularly given the balance sheet to fund material additional M&A (we project €400m of net cash, plus €234m of short-term investments)."

Challenger banks Aldermore and Shawbrook got a boost on Thursday as Bank of America Merrill Lynch lifted its recommendations on the stocks to ‘buy’ from ‘neutral’.

BofA said the introduction of the Bank of England’s term funding scheme (TFS) along with a reduction in the UK macroeconomic downside risk has significantly reduced the tail-risk in the specialist lenders.

“Some fiscal stimulus has been promised by the new UK government. We think some changes to stamp duty could be one logical shift in policy, which would help the property market and increase mortgage lending. The challengers would benefit most, we think.”

BofA Merrill Lynch said the UK’s vote to leave the European Union has caused a big drop in Aldermore’s share price, along with expectations of a recession and lower interest rates.

However, it pointed out that Aldermore has reacted by reducing underwriting risk.

“Its liability mix means it is a beneficiary of lower rates. While risks remain, we think the BoE's TFS reduces tail-risk giving us more confidence in Aldermore's business model.”

As far as Shawbrook is concerned, it said a combination of origination growth, cost control and quality underwriting has allowed management to target a return on equity of more than 22%.

“While Brexit looks to have hurt, the immediate outlook the BoE TFS reduces tail risk and Shawbrook’s liability structure means that it is able better protect net interest margin than most.”

Just Eat shares were under the cosh on Thursday as Barclays downgraded the stock to ‘equal weight’ from ‘overweight’ and raised its target price to 630p from 550p.

Barclays said it has upgraded its estimates and price target to reflect the “strong first half execution” but believes the outperformance of the shares is not enough to keep its ‘overweight’ rating.

Just Eat on 28 July reported a 107% surge in first half underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to £53.4m on a 59% increase in revenues to £171.6m. The company said active users jumped 45% to 15.9m and orders soared 55% to 64.9m.

Following the results Barclays has upgraded its earnings per share forecast for fiscal year 2016 to 11.3p from a previous estimate of 10.2p.

“Our 2016 estimates suggest Just Eat will have delivered a three-year compound annual growth rate in revenue and EBITDA of 57% and 99%, respectively. This has been driven by positive estimate momentum as a result of Just Eat’s strong market positioning and solid execution.”

Barclays said the online takeaway ordering service has delivered “consistent upgrades” since its initial public offering in April 2014. Its consensus estimates for fiscal year 2016 EBITDA have risen 80% since May 2014.

However, the bank said: “While we still see some upside to Just Eat’s conservative guidance as it continues to outmanoeuvre the competition, this is likely to be at a slower pace.

"The rate of growth in UK orders is dropping and, with a tough third quarter comp, this could come under increased scrutiny."