Four questions for Playtech after its FY18 results
What next for Asia and is it too late to the party in New Jersey?
Playtech shares jumped 10% last week as the firm beat FY18 earnings forecasts, but there are still plenty of questions about the future of the business.
What’s the plan for Asia?
As previously flagged, Asia revenues declined some 26%, although the region still accounted for around 9% of group revenues. Analysts at Numis suggested before the results it might be worth spinning out the Asia business, but Playtech confirmed its commitment to the region.
“Increased competition in the region is likely to remain, and accordingly Playtech has taken several actions to secure its position in the market,” the firm said.
These actions included appointing a new managing director for Asia, as well as new games and more support for partners in the region.
The firm added: “Playtech continues to monitor developments in Asia closely and, at its current run rate, still sees commercial benefits to operating in the region. While operating at a lower run rate than before, Playtech’s Asia business remains high margin and highly cash- generative. This cash will continue to be used to execute our strategy in regulated markets as well as for returns to shareholders.”
As Weizer put it: “The three largest businesses in the industry, including GVC and PokerStars for example, built their business on the combination of regulated and unregulated. As the market transitions to regulated, having some income streams from unregulated is an advantage over competitors.”
Are there any plans to sell off the financials business which some investors have described as “non-core”?
Jason Ader, who holds a $100m stake in Playtech, has publicly called on the firm to sell off its financial trading business and “focus on gaming”.
However, the TradeTech business saw 9% adjusted EBITDA growth to €29.5m, with Playtech describing it as a highly attractive asset, and seemingly pushing back at calls to sell it.
“The Group recognizes it is less understood by many of our investors, who are more focused on the gaming part of the business,” the firm said in its report.
Weizer said the firm heard comments about a potential sale but valued TradeTech as a “unique and highly attractive asset” in a fast-developing industry.
Is it too late to the party in the US?
The provider filed its licence application in Q4 last year, significantly behind most of its major rivals, and is still waiting for official approval from the DGE. Does that put a cap on its ceiling in the market?
“No I don’t think we are too late,” CEO Mor Weizer told EGR. “I think the DOJ statement slows things down and the opportunity is significant in the medium and long-term. In most states, legislation does not include online sports yet. Its only just started. In New Jersey the vast majority of operators are a partner of Playtech in some way, GVC, PokerStars, 888, Paddy Power Betfair.
“We will become an important partner to operators, providing them with software. Given its more advanced, we will be focused on software and the traditional B2B model rather than JVs and white labels.”
Where’s the extended deal with GVC?
Several analysts expected an update on negotiations with GVC, but nothing major was forthcoming. However, that doesn’t mean a new deal isn’t close.
Playtech CEO Mor Weizer told EGR his legal and operations teams had endured “many sleepless nights” in the build up to results day in a bid to get the deal done for the results announcement.
“However we don’t want to rush it and we didn’t manage to do that,” Weizer said. A source informed of the discussion said a deal “should/could be in the next week”, likely before GVC’s own results day.
Weizer also said the partnership was likely to extend beyond the traditional Ladbrokes Coral relationship.
“We believe we can contribute a lot more to other parts of the business that we don’t already do business with,” Weizer said.
“We don’t do much with bwin, Sportingbet, party. I think both parties acknowledge we are complementary businesses since we are focused on software and technology, while they are very B2C. When two business like that work together it can be beneficial for both parties.”