Canaccord raises target price and reiterates 'buy' on Playtech

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)."

Shares rose 4.39% to 939p at 1100 BST.