View from the City: What next for Playtech?

The Sohn investor events are rituals for investors, hedge funds, and speculators alike, but for reasons other than investment. Boasting well-attended (and well-heeled) audiences, they crucially do not provide as much insight as they do sensation. Indeed in recent years, these events have devolved to not much more than smugly satirical (and self-aware) but assuredly lofty speeches by fund managers. Perhaps all those re-runs of Billions (or even Silicon Valley) have condensed events like this to grandiloquent justifications for hedgie’s own long or (occasionally short) position in their own funds. But even in comparison with previous years’ lily-gilding, this year’s event – held a few days ago in London – was particularly self-gratifying. How else could you justify a pitch including the phrase “impeccable cash conversion” (Crispin Odey) to describe none other than Plus500?

However, the quote of the evening belonged to Jason Ader. Describing Playtech as “the most undervalued gaming firm on the planet”, he went on to say that it is now ripe for a buyout. Leaving aside the matter of which is the most undervalued gaming firm at the moment (hint: it’s not Playtech or Plus500, coincidentally both of which Ader and Odey respectively own at least 5%), when a fund manager describes one of their stocks as the most undervalued on the planet, surely they must know that they can’t call the bottom themselves. If anything, given the way momentum-driven markets work, it becomes a race to an (even lower) bottom.

But behind the Gecko-esque rhetoric, there is indeed some smart thinking here. It is likely that Ader’s pitch is the start of a multi-staged strategy (not unlike Soros’s cryptic press releases in the 90s) that will gradually add value to Playtech’s market cap. Having recently ousted Teddy Sagi from the decision-making process of the business; Ader has now relatively unhinged decision making powers in the board. Backed by Crispin Odey’s fund, the pair can now set on some very interesting strategic moves; such as unloading any assets that are non-core-competence – including the sale of Playtech’s remaining financial products. Next would likely be an announcement around some new joint ventures (because Playtech just loves JVs) in the US to supply products and services embracing the newly-regulated states. And finally, the end-game – buyout by a (US-facing) private equity firm with a view to selling it onto a larger media partnership in the not too distant future. With Ader still managing a smaller (but significantly more valuable) stake.

Share price at the time of the Sohn pitch remained relatively unchanged; that’s because sufficient investor cynicism has already been baked into these conferences. But make no mistake; the funds are watching and waiting; likely for a process that has already begun…