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Share placings have become commonplace in troubled sectors of late, but the gaming sector is normally considered as highly cash generative and - at least theoretically - one that should be able to support expansion without tapping shareholders too often. Yet the last few weeks have seen a wave of share placings in the gaming sector.
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In June, gaming software group Playtech issued the equivalent of almost 10 per cent of existing shares in order to raise £112m to fund potential acquisitions. Then, in July, Inspired Gaming - the manufacturer of land-based gaming machines - placed more than half of its existing shares to fund the exit from its pub division and repay £10m of existing debt. Earlier this month, Leisure & Gaming - the Aim-quoted provider of online services to betting shops - followed suit with the addition of 9m shares, or 11 per cent of existing shares, to fund the acquisition of a betting licence in Italy. So, are these cash calls a sign of distress?
In the case of Inspired Gaming, its highly dilutive share placing reflects the challenges faced by the company. Over the past 12 months, the fruit machines it installed in pubs have been hit by the smoking ban. And, with plenty of debt already on its balance sheet, this highly dilutive deal was one of its last options to raise cash and ensure the company's survival.
Playtech and Leisure & Gaming's floats were linked to acquisitions which, coupled with the recent admission by Partygaming that it was costing more to retain customers, suggests that organic growth in the sector is becoming harder to come by - and some companies are looking to buy growth rather than attempt to achieve it organically.
Some shareholders might be disappointed that Playtech has opted for a dilutive solution, particularly in this tough market. But, like any software company, the group needs to hold on to its cash to finance product development. Given the rate of growth displayed in second-quarter sales figures released this week, the recent outlay by investors should be recouped in time. Good value at 482p.
Last IC View: Fairly priced, 391p, 4 Mar 2008
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
