Playtech PLC

Playtech PLC (LON:PTEC) is a Douglas, United Kingdom-headquartered technology leader in the gambling and financial trading industries, which is the pioneer of omni-channel gambling technology through its integrated platform technology, Playtech ONE, and directly owns and operates a leading sport betting and gaming brand in online and retail in Italy, Snai. It offers the most popular product verticals, including, casino, live casino, sports betting, virtual sports, bingo and poker, and provides its technology on a B2B basis to the leading retail and online operators, land-based casino groups and government sponsored entities. The operations of the group are differentiated in three segments, namely Gaming B2B, Gaming B2C and Financial.

Trading Update
During the period from 1 July 2019 to 31 October 2019, regulated B2B Gambling revenue for the first four months of H2 2019 was up 13% after excluding the impact of the increase in remote gaming duty in the UK and up 12% on the same period in 2018 at constant currency and excluding acquisitions. The company reported that on an annualised basis, the current Asia revenue run rate continues to be approximately €100 million, while at the current run rate, Asia will contribute approximately €115 million of revenue in 2019, and noted that the operational performance of Snaitech continued to be very strong.

Financial Highlights (H1 2019, in €m)
 
(Source: Company Filings)

Driven by the inclusion of Snaitech results for the entire period, as well as growth from the Core B2B Regulated Gambling revenues, total revenue increased by 69% to €736.1 million (H1 2018: €436.5 million) and by 68% on a constant currency basis. On a constant currency basis, Adjusted EBITDA increased by 31% and Adjusted Net Profit decreased by 13%, while reported Adjusted EBITDA increased by 31% and Adjusted Net Profit decreased by 15% to €190.6 million and €70.7 million respectively. Adjusted diluted EPS decreased by 14% to 20.5c while reported diluted EPS declined by 84% to 5.5c. With adjusted cash conversion of 92%, the company delivered operating cash flows of €127.4 million, and cash and cash equivalents amounted to €873.3 million as at 30 June 2019 (30 June 2018: €936.6 million).

Share Price Commentary

Daily Chart as at 25-November-19, before the market closed (Source: Thomson Reuters)

On 25 November 2019, at the time of writing (before the market closed, GMT 10:27 am), PTEC shares were trading at GBX 405.5, up by 1.39% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 469.60/GBX 352.90. The company's stock beta was 1.27, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £1.22 billion, with a dividend yield of 3.99%.

Conclusion
The Adjusted EBITDA for FY 2019 is now expected to be a little below current consensus as trading conditions in TradeTech were highly challenging during September and October, and the company expects results for 2019 to be well below expectations of the management. Moreover, the business is subject to continuously evolving rules and practices governing the taxation of e-commerce activity in various jurisdictions, and a downturn in consumer discretionary spend or macroeconomic factors outside of the control could result in reduced spend by consumers on gambling and financial trading, the risk of which has increased in recent months. Additionally, new requirements may be imposed on the group, and local regulators have their own specific requirements, which often vary on a country to country basis, and as the company continues to operate across multiple locations, globally diverse operations carry risk particularly as markets change.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 405.5 (as on 25 November 2019), while we look for any upcoming catalysts in the near term.

D4t4 Solutions PLC

D4t4 Solutions PLC (LON:D4T4) is a Sunbury-on-Thames, United Kingdom-headquartered group that is focused on solutions that enable clients to get the most from their data, which includes providing data collection, management, and analytics solutions, with a focus on providing end-to-end management of the entire data lifecycle. The group offers comprehensive products and services that drive value from information assets and is also engaged in distribution, design, installation and support of computer hardware and software systems. The operations of the business are differentiated in three operating segments, namely Products - Own IP, Products - 3rd party, Delivery services and Support & maintenance.

Financial Highlights (H1 2020, in £m)
 
(Source: Company Filings)

Due to the effect of the anticipated H2 weighting, revenues from Products - Own IP during the first half were £1.81 million (HY2018-19 £6.39 million), while due to the lower level of revenue for hybrid cloud data platform business during the period, first half revenues from Products 3rd party of £2.21 million were lower than previous year (HY2018-19 £3.62 million). Total revenue in the first half was £8.84 million (HY 2018-19: £13.99 million), which reflected the anticipated HY2 weighting this year as a result of the timing of contract wins and was in line with management expectations. The company recorded an operating profit of £0.83 million compared to an operating profit of £3.91 million in HY2018-19, while gross profit during the period declined to £4.58 million against £7.13 million in the prior year. Against earnings per share of 7.37p in the comparable 2018-19 period, adjusted fully diluted earnings per share was 1.76p as the post-tax profit was £0.80 million versus a 2018-19 first half post-tax profit of £3.36 million. Net cash at the half-year stood at £11.24 million (HY 2018-19: £12.06 million), while net current assets rose to £11.65 million against £8.53 million in the prior year.

Share Price Commentary

Daily Chart as at 25-November-19, before the market closed (Source: Thomson Reuters)

On 25 November 2019, at the time of writing (before the market closed, GMT 10:23 am), D4T4 shares were trading at GBX 199, down by 7.14% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 288.00/GBX 172.45. The company's stock beta was 0.55, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £86.52 million, with a dividend yield of 1.40%.

Conclusion
The company continues to drive stated strategic initiative to earn high margin, recurring revenues by building the data platform solutions and developing its innovative customer data platform software, and the business is in a good position and together with a strong pipeline of opportunities and high level of contract renewals from new licences signed during the second half of last year. To provide with increasing numbers of new opportunities in a wide range of enterprise class customers, the company is focusing on selling with and via partners that have global reach and penetration in target market sectors, which augurs well for the future business.

Based on the above rationale, we have given a “Speculative Buy” recommendation at the current price of GBX 191 (as on 25 November 2019, before the market closed at 8:10 AM GMT).

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