Don’t panic about the share price slip at gaming software provider Playtech (PTEC) as it most likely reflects profit taking after a strong run for the £2.9 billion cap.
The group is trading down 2.3% at 870.5p despite reporting an 11.6% rise in pre-tax profit to €85.8 million in the first half, with revenues 33% higher at €286 million.
Some investors are perhaps unimpressed by the gaming division’s 2% slip in average daily revenue in the third quarter, but this shouldn’t be a big concern as the third quarter is traditionally the slowest quarter.
The group’s margins are lower as expected – down from 45.5% to 39.5% – which reflects the impact of acquisitions, the UK Point of Consumption Tax and the recently-established lower-margin white label activity.
After stripping out acquisitions, the benefits of foreign exchange and the impact of the Point of Consumption Tax like-for-like revenues have grown by an impressive 15%.
Casino remains the core growth driver, with revenues up 28% on the back of new contracts, strong underlying market growth, FX and the launch of slot games in Spain.
This year has been a transformational one for Playtech, which is expanding into the contracts for difference market via its acquisitions of TradeFX, AvaTrade and Plus500 (PLUS:AIM). These businesses are expected to generate 38% of EBITDA (earnings before interest, tax, depreciation and amortisation) in 2016.
Playtech’s shares are up 29% year-to-date but they still look attractive given the strong growth rates. Its 2015 price to earnings ratio is just 13 with a dividend yield of 2.2%.
‘We see upside risk to forecasts as synergies come through in financial trading, it has a strong balance sheet to fund further deals, and underlying growth rates across its markets remain robust,’ says Canaccord Genuity analyst Simon Davies.