Following the recent announcement of its proposed mega-merger with Austrian online betting group Bwin, PartyGaming’s results were something of an anticlimax. However, the results were a reminder that, even without the merger, PartyGaming is a business that has been making progress despite some major challenges.
Significantly, the regulatory environment appears to be moving in PartyGaming’s favour. New regulated national markets are opening up in Europe, and recent events in the US suggests a re-entry into this massive market is an increasingly plausible possibility.
The business also receive a lift from two acquisitions last year, including the UK’s leading online bingo company Cashcade. Overall, underlying cash profits were up 14 per cent at €48.1m (£39.8m) while EPS was down 9 per cent at 6¢, reflecting acquisitions-related amortisation charges.
However, its online poker business continues to struggle, with net revenues falling 9 per cent to €64.6m. The main problem for PartyGaming is that its rivals that continue to operate in the US - despite a ban imposed four years ago - have better liquidity, which attracts more customers.
Broker KBC Peel Hunt forecasts full-year underlying pre-tax profits of €84.9m and EPS of 18.0¢ (14.9p), from €84.2m and 18.6¢ in 2009.
|ORD PRICE:||286p||MARKET VALUE:||£1.17bn|
|TOUCH:||286-287p||12-MONTH HIGH:||340p||LOW: 206p|
|DIVIDEND YIELD:||nil||PE RATIO:||10|
|NET ASSET VALUE:||53¢*||NET CASH:||€147m|
|Half-year to 30 Jun||Turnover (€m)||Pre-tax profit (€m)||Earnings per share (¢)||Dividend per share (¢)|
*Includes intangible assets of €243m or 59¢ per share
Expected Bwin merger synergies of €55m may prove conservative, and the prospect of a regulatory U-turn in the US could mean party time for investors. Given the potential boost from these developments, the shares are good value on a forecast PE ratio of 19.
Last IC view: Fairly priced, 301p, 4 March 2010