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FTSE 250 gambling-focused technology stock Playtech (LSE: PTEC) was an absolute gem last year.
As my fellow Fool Ken Hall pointed out back in January, the share price climbed 60% to £7.22, making it one of the year’s standout mid-cap performers.
A few key things went right. Playtech sold its Italian consumer-facing business Snaitech to Flutter Entertainment for €2.3bn in cash.
This freed up capital for investment and shareholder returns and allowed Playtech to sharpen its focus on business-to-business (B2B) services, where margins tend to be better. The group also resolved a long-running dispute with Mexican partner Caliplay, which had previously clouded the growth outlook in Latin America.
The global online gambling sector is growing strongly, and Playtech’s technology platform and commercial partnerships gave it a good shot at riding that wave through 2025.
Solid progress
Full-year results in March confirmed the story. Adjusted EBITDA across continuing and discontinued operations rose 11% to €480.4m, slightly ahead of expectations.
The B2B division alone grew 22% to €222m, hitting target two years ahead of schedule.
Strong trading in the US and Canada and a massive special £1.5bn dividend of up to €1.8bn once the Snaitech deal completed gave Playtech the feel of a business on a winning streak.
Then came the big drop. On 7 May, the Playtech share price slumped from 800p to 320.5p in a single day, a collapse of 60%.
I assumed this would be down to some nightmare profit warning, but no. That crash I heard was the sound of that special dividend landing. That £1.5bn represented almost two-thirds of Playtech’s market cap at the time. The dividend had been flagged for months, and the share price adjusted accordingly. The market cap is now £933m.
Peel Hunt analyst Ivor Jones still rates Playtech a Buy. Adjusting for the payout, his implied share price target is around 510p, giving potential 62% rise. Jones likes the simplified structure, which is now mostly focused on B2B gambling services and software-as-a-service platforms.
He also noted Playtech’s sustainable business model, maturing investments and a management team closely aligned with long-term growth.
Good news, not bad
Those buying today have missed the special dividend, obviously. But the lower entry price already reflects that.
Playtech’s latest update on 21 May showed trading in the first four months was in line with expectations. Demand remains strong in the Americas, especially for live casino services.
Playtech is continuing to divest non-core assets such as German brand HAPPYBET and investing in growth markets.
The analyst consensus remains positive. Five brokers have issued one-year forecasts with a median target of just over 472p, which would mark a 55% gain from current levels. Four call it a Strong Buy, while one recommends Hold.
I’m a little wary of these. Five isn’t many. I suspect they may be a self selecting group, of those who liked the stock.
Gaming isn’t my favourite sector. It’s volatile, and tightly regulated. Although I accept that online betting has become deeply embedded in global consumer habits.
Playtech isn’t cheap either, trading at 19 times earnings. So it’s risky, but future growth does appear to be priced in. Any earnings slip will be punished.
I’ll need to do a bit more research here, before I consider buying. But I’m sorely tempted.
