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Bwin.Party gets speculative

RESULTS: The PartyGaming merger has complicated Bwin.Party's full-year figures – but progress looks reasonable, there's plenty of cash and the shares aren't expensively rated
March 30, 2012

Last year's merger with PartyGaming certainly complicated Bwin.Party's full-year figures. However – and despite impairment and restructuring charges of over €540m (£450m) forcing a hefty reported loss – the company benefited from the first €23.3m tranche of merger-related cost savings; forecast to reach €128m by 2013. Accordingly, underlying pro-forma cash profit grew 27 per cent in 2011 to €225.3m and the shares, rated on a not especially pricey cash-adjusted 11 times forecast earnings, remain worth buying.

IC TIP: Buy at 158p

The merger took place against a background of rapid regulatory change and some rationalisation plans in Spain and Denmark had to be postponed as a result. This delayed the launch of an integrated electronic gaming platform, although that should be up and running by the year-end. Meanwhile, the latest amendments to Germany's restrictive online gambling laws are still being reviewed by the European Commission. Until that situation is resolved, Bwin.Party has applied for a licence in Schleswig Holstein; the German state with the least prohibitive gambling-related tax regime.

Operationally, Bwin.Party's sports betting division suffered due to the absence of a major football tournament last year and there were 6 per cent fewer active player days. Still, pro-forma divisional revenues and cash profits were resilient, if flat, at €260.6m and €64.3m, respectively – after a better second-half yield per player. Meanwhile, despite a 6 per cent fall in amounts staked in the casino and games business, a better product mix, the launch of casino games in Italy and quicker-than-expected cost savings meant a 17 per cent rise in divisional cash profits to €92.5m.

At the poker division, there had been hopes that Bwin.Party would have benefited from the crackdown on US poker sites such as Full Tilt. However, the only evidence of any boost was a more stable second half, which restricted the fall in overall net revenues to 7 per cent. Poker profits, however, were underpinned by lower advertising costs in regulated markets, and rose 6 per cent to €29.4m.

Broker Peel Hunt expects pre-tax profit of €146m for 2012, giving EPS of 15.2¢.

BWIN.PARTY DIGITAL ENTERTAINMENT (BPTY)

ORD PRICE:158pMARKET VALUE:£1.29bn
TOUCH:157-158p12-MONTH HIGH:210pLOW: 99p
DIVIDEND YIELD:2.0%PE RATIO:NA
NET ASSET VALUE:97¢*NET CASH:€198.6m

Year to 31 DecTurnover (€m)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (p)
201034843.89.80nil
2011675-423-56.03.12
% change+94---

Ex-div: 9 May

Payment: 12 Jun

*Includes intangible assets of €739m, or 90¢ a share

£1=€1.19