Hard to hide Playtech's value

Playtech (PTEC) is a business evenly split between being a gambling operator and its historical focus as a pure software company. There looks to be a gap in the valuation, plus Playtech has received several highly priced takeover approaches in the last year. 

B2C gambling and B2B software revenues

Running into a recession one can never be sure how well an industry that has not been through the cycle before (mobile gaming especially is comparatively recent) will perform but informed opinion suggests that online gaming and gambling will prove resilient and do better than many other discretionary areas of spending. An argument against being sanguine is that gambling has become a lot more casual in nature and the resilience narrative perhaps only really holds true for the more hardened (arguably addicted) gambler of yesteryear.

For many users, gaming sites are more tilted towards being a leisure activity like eating out, going bowling or seeing a film and that puts the gambling activity at greater risk of being cut from consumers’ spending or, at the very least, pared back. 

The group is exposed directly to the consumer with its in Italian Snaitech business, but via its B2B software arm Playtech has reasons for optimism. How its gambling operator clients will respond in a tighter climate could break both ways. Some may retrench while others may double down and seek to make their offering more attractive in order to keep customers playing. Either way, where operators remain open they will need the same levels of operational systems in place and that should mean that the group’s B2B revenues prove resilient: they could even increase. 

Another danger in recession is that regulation may tighten further. There is always a part of the population that is inclined to become more reckless in their gambling habits if money is tight elsewhere. It is possible, however slim the chance, that governments begin to take actions such as lowering the permitted stakes or time that can be played. This would again affect operators and that could actually mean additional work for Playtech as gaming systems would need to become more complex. 

Overall, Italy looks more vulnerable but the B2B side feels as if it should steer reasonably well through a recession, as long as it is not too deep. Recession feels more likely to dent growth rates rather than cause a major misstep for profits. 

An intriguing possibility would be to sell Snaitech and make a substantial capital gain for shareholders. It was an idea raised after one of many failed recent attempts to acquire the whole group. The board has rowed back on the suggestion, as Snaitech is highly profitable, but strategically it is not an absurd option to raise resources and focus on the very good B2B business. Regardless of such speculation, the current share price falls short of reflecting the combination of earnings potential and value realisation that the group offers.