Playtech share price falls 22% on Asia concerns
Latest trading report reveals concerns over Sun Bingo and Asian market despite positive revenues
Playtech’s share price plummeted 22% in early trading this morning as the supplier’s latest trading update revealed some unexpected issues in its Asia-facing business.
The firm noted it had seen a “recent slowdown in certain parts of Asia due to recent changing market conditions”.
“Whilst it had been expected that activity would return to normalised levels in a relatively short timeframe, we are now not expecting any significant improvement in 2017.”
Paul Leyland of Regulus Partners said the Asia news was likely to have been a surprise to investors given it had been the key organic growth engine of the group for the last five years or more, contributing around 38% of revenues.
Meanwhile, Numis analyst Richard Stuber said the downturn stemmed from an online gambling crackdown in Malaysia.
“We estimate that revenues from Malaysia represent a mid to high single digit percentage of PTEC’s gaming revenue,” Stuber said in a note this morning. “Assuming a 50% EBITDA margin, this could represent c.£30m of EBITDA on an annualised basis.”
He added: “We understand that there have been internal issues with a key licensee operating in China.”
The trading update also revealed more issues with the Sun Bingo contract, which had impacted H1 revenues.
“The Sun Bingo contract remains challenging due to lengthier seasonality and the re-launch of the new Sun Bingo site,” Playtech said.
Leyland said the Sun issues were not surprising, adding: “It does raise capability questions in the competitive UK bingo market, where Playtech has leading liquidity but limited innovation, through its Virtue Fusion platform.”
The two factors meant Playtech warned its FY results would be 5% below bottom-end market expectations.
“Playtech will continue its strategy of focusing on both organic and inorganic revenue growth in regulated and to-be-regulated markets,” the firm added. “The M&A pipeline remains very strong and the Company is in active discussions with a range of Gaming businesses consistent with executing this strategy and with the expectation that the relative contribution from Asia to the Group will consistently reduce over time.”
Elsewhere, daily average revenues were higher than reported in the H1 results, with the rest of Playtech’s B2B business performing in line with expectations.
“We expect a sharp fall in the share price to adjust for this earnings disappointment,” said Cenkos’ French.