The Asian gaming market is proving to be a tough one for Playtech (PTEC). The gambling software company warned that sales from Asia would be around €70m (£62m) lower than previously expected during the second half of this year. Meanwhile, analysts at Shore Capital expect revenue for 2019 to be €100m (£88m) down on previous expectations. This will trickle down to adjusted cash profit, which is now expected to be in the range of €320m to €360m for 2018, compared with €322m in 2017. This includes an €80m contribution from recently acquired Italian website operator Snaitech. That's down on previous consensus expectations of between €325m and €330m, excluding Snaitech.
China and Malaysia are the sore spots for Playtech. This most recent warning stems from a surge in competition in the unregulated Chinese market, as new entrants undercut current prices to help gain market share. Over the past nine months, the number of operators in the Chinese gambling market has swelled from around seven to more than 30. Some are larger European companies looking for growth, while others are local Asia-based operations.
Back in November last year Playtech warned of disappointing profits in Malaysia. Online gaming had been blocked in the country and has yet to be reinstated. Malaysia is another unregulated market, and while politicians usually let the gambling market slide, a more stern stance was taken ahead of the election.
As of the most recent set of results, around a third of Playtech’s revenue came from Asia, and sales were relatively evenly split between regulated and unregulated markets. The ambition now is to rely less heavily on income from unregulated countries and shift to regulated ones. Previously these regions had been highly cash generative, allowing Playtech to use profits generated in unregulated markets to invest in growth in regulated markets. This reliance is dwindling. Around 78 per cent of sales are expected to come from regulated markets in 2018, increasing to 90 per cent in 2019.
A spokesperson for Playtech says the most likely scenario is that future growth in Asia will be slow or flat, and the focus will be on regulated markets. Selling the Asian business is also “something that’s been discussed”. Analysts at Deutsche Bank reckon there’s a potential 50 per cent share price upside if Asian exposure was removed entirely.
The deal to acquire Italian gambling company Snaitech has “fundamentally changed” the structure at Playtech, according to Deutsche Bank analysts. It’s increased Playtech’s exposure to regulated markets, and given it a strong position in Italy given that Snaitech is the number one retail sports brand.
