Whether to gamble on bullish Playtech

Playtech is the brains behind the global internet gambling industry. Its technology and services make it all work. New deals and licensing agreements are driving growth and prospects are exciting. Profits surged during a better-than-expected first half, and despite considerable regulatory uncertainty investors have chased the shares to a five-month high.

Revenue jumped by a fifth in the six months ended June to €214 million (£170.16 million), driven by strong growth in casino in Asia, mobile casino and sports. Adjusted cash profits rose 28% to €97.6 million, and Playtech has started the traditionally quieter third-quarter strongly, too, with daily average revenues for the first 59 days of the period up over 21% on last year. Understandably, management is confident of beating market forecasts for the full-year.

Two new deals in Mexico and Italy will help, as will an extension of the existing agreement with SkyBet over here. Canaccord Genuity certainly thinks so. The broker has just upgraded earnings per share (EPS) forecasts for 2014 by 10% to 60.8 euro cents and by 9% for next year to 60.7 cents.

That puts Playtech shares, currently up 6% at 706p, on a forward price/earnings (PE) ratio of 14.6. Strip out forecast year-end net cash of £352 million, or 120p per share, and that falls to an incredibly modest 12 times.

If the company decides to spend that money, generated by the sale of its stake in William Hill Online for about £424 million, on acquisitions, Canaccord calculates it could drive EPS by about 23% in the first year. Watch out for a break above technical resistance at around 714p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.