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Playtech (LSE:PTEC), a member of the FTSE 250 share index, lost over a fifth of its market cap yesterday (21 October). This was after the provider of technology solutions to the gambling industry was accused by one of its rivals of engaging in a “defamatory smear campaign”.
Evolution, the Swedish “provider and innovator” of online casino games, commenced legal action in December 2021 against a US law firm alleging defamation and trade libel. After an exchange of legal documents, it now says it’s “unmasked” Playtech as engaging a third-party investigator to “prepare and disseminate a 2021 report containing highly inflammatory and knowingly false claims about Evolution and its business practices”. According to the group, the purpose was to “substantially harm the company for anti-competitive reasons”.
Playtech responded by saying that the claims were “wholly untrue” and that it lawfully commissioned a report “to better understand and verify concerns of significant regulatory and commercial importance”.
I’m going to leave it to the courts to decide the rights and wrongs of all this. Needless to say, I don’t think the bosses of these two will be exchanging Christmas cards this year.
One person’s trash is another’s treasure
However, after reflecting overnight, it appears as though some investors have spied a buying opportunity. By mid-morning on 22 October, the Playtech share price had recovered by around 6%.
Are they right? At first glance, I’m not so sure.
That’s because, aside from this legal case, Playtech has another important issue to contend with. There are persistent rumours that the government will raise taxes on the gambling industry in November’s budget. If this happens, the demand for the group’s technology platform is likely to take a big hit.
And there are calls to further regulate the industry. The World Health Organisation claims that 1.2% of adults are affected by a gambling disorder and has called for a ban on advertising. It also wants to see binding loss limits and stricter controls on availability introduced.
My verdict
However, on balance, I think Playtech has lots going for it.
Although any increase in taxes on the industry is likely to damage the group’s revenue and earnings, it’s important to remember that it’s a global operator. It has over 200 licensees in 45 different jurisdictions. In 2024, it earned 11.8% of its revenue in the UK. Its Italian business is five times bigger. Mexico is a significant market too.
And the group has an excellent track record of growth. From 2021-2024, revenue grew by 49% and adjusted earnings per share were 75% higher.
Some will be concerned that this hasn’t helped its share price. Since October 2020, it’s fallen 22%.
However, much of this can be explained by the group’s decision to sell one of its businesses for €1.8bn in May (£1.57bn at current exchange rates) — more than its current market cap of approximately £825m. It then used some of the proceeds to return €5.73 a share to shareholders by way of a special dividend, which explains the large drop in its share price as the stock went ex-dividend.
Encouragingly, current trading also appears to be strong. In September, it upgraded its earnings expectations for 2025. Although I’m mindful of the risks, I think Playtech’s a stock worth considering.
