Playtech reports record cash profits

There are few signs of spending pressures hitting demand at Playtech (PTEC). The gaming operator and software supplier posted solid revenue growth across its business-to-business (B2B) and business-to-consumer (B2C) operations and enjoyed record cash profits (albeit on an adjusted basis) in the half. The slide in statutory pre-tax profits was due to €26mn (£22mn)-worth of non-cash fair value losses on derivatives and a €40mn increase in distribution costs.

B2B revenue rose by 7 per cent to €335mn on the back of a 43 per cent uplift in sales in the Americas, with the Mexican joint venture, Caliente, driving performance. The partnership extension with Northstar in Canada was another highlight, while the ongoing process to regulate sports betting in Brazil is something to watch given the company's agreement with a bookmaker there. Software as a service (SaaS) revenue, which offers top-line diversification, was up by more than half against last year. 

While Playtech is in the early stages of building its profile in the US, investors should be relieved that the company isn’t passing up the chance to make inroads there given it is the key gambling growth market after the Supreme Court ruled in 2018 that a sports betting ban was unconstitutional. 

Playtech now has the green light to operate in 10 states, with licences granted in Ohio, Maryland and West Virginia this year. The €80mn deal signed with Hard Rock Digital in March, which gives Playtech a minority interest in the gaming and sports betting operator, has significantly enhanced the company's presence in North America. Customers will be able to access Paytech's gaming content through Hard Rock Digital's platform.

Chief executive Mor Weizer told Investors’ Chronicle that he expects the US gambling market to continue to grow significantly in the years ahead.

The B2C side of the business also put in a robust shift, with revenue up 9 per cent to €532mn. Italian division Snaitech took almost 60 per cent of total company sales, benefiting from "pent-up demand" after the World Cup, with both retail and online performing well. The Snai brand is the sports betting market leader in what is Europe's biggest gambling market. 

The balance sheet remains resilient, with leverage of just 0.6 times. Cash generation is attractive, with adjusted operating cash flow coming in at €233mn for the half. Strong trading and US progress, combined with a lowly consensus valuation of just 10 times forward earnings, keeps us bullish. Buy.

Last IC View: Buy, 551p, 23 Mar 2023