Hard to hide the value of Playtech

  • Interest in a recent takeover sparks an interesting divestment idea
  • A strong B2B arm provides recession resilience

Playtech (PTEC) is a company that is evenly split between being a gaming operator and its historical focus as a pure software company. There appears to be a valuation gap, and Playtech has received several high-priced takeover approaches over the past year.

Revenue from B2C gambling and B2B software

Going into a recession, you can never be sure how well an industry will perform that hasn’t been through the cycle before (mobile gaming in particular is relatively new) but informed opinion suggests that gaming and gaming in online will prove resilient and outperform many other discretionary games. spending areas. An argument against the optimism is that the game has become much more casual and the resilience narrative may only be true for the more hardened (arguably addicted) player of yesteryear.

For many users, gambling sites are geared more towards a leisure activity such as eating out, going bowling or seeing a movie, which puts gambling activity at greater risk of being cut off from consumer spending. or, at the very least, reduced.

The group has direct-to-consumer exposure with its Italian Snaitech business, but through its B2B software arm, Playtech has reason to be optimistic. The reaction of its gambling operator customers in a more tense climate could go in both directions. Some may withdraw while others may double down and seek to make their offer more attractive in order to continue playing. Either way, where operators remain open, they will need the same levels of operational systems in place and this should mean that the group’s B2B revenues will prove resilient: they may even increase.

Another danger in the event of a recession is that regulations could tighten further. There is always a part of the population that is prone to becoming more reckless in their gambling habits if money is tight elsewhere. It is possible, whatever the luck, that governments will start to take measures such as reducing the stakes allowed or the time that can be played. This would again affect operators and it could actually mean extra work for Playtech as gaming systems would have to become more complex.

Overall, Italy looks more vulnerable, but the B2B side feels it should weather a recession reasonably well, as long as it’s not too deep. The recession looks more likely to reduce growth rates than cause a major profit misstep.

An intriguing possibility would be to sell Snaitech and realize a substantial capital gain for shareholders. It was an idea raised after one of many recent failed attempts to acquire the entire group. The board backtracked on the suggestion, as Snaitech is very profitable, but strategically it’s not an absurd option to raise resources and focus on great B2B deals. Regardless of such speculation, the current share price does not reflect the combination of earnings potential and value realization that the group offers.

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