Playtech profits from William Hill joint venture

Playtech, the online gambling software provider, reported a 70 per cent rise in full-year profits as income rolled in from new contracts and its joint venture with William Hill.

The group, which is based in Estonia and is the biggest company listed on Aim, bought a series of gaming assets, businesses and contracts in 2008 and sold them for $250m to William Hill to create William Hill Online, in return for a 29 per cent stake in the business.

William Hill, which has 2,300 betting shops, hopes the deal will transform its business into Europe’s leading online gaming and sports betting business.

In spite of initial teething problems, the joint venture brought in €22.5m in profits for Playtech, which helped boost pre-tax profits at the group from €41.4m to €70.3m for the year to December 31.

Revenue grew 3 per cent to €114.8m as it signed up new companies such as Betfair, Virgin and Sega to use its gaming software.

Since the year end, Playtech has made what some analysts think could be another significant partnership, this time with Scientific Games, the world’s largest lottery software provider. The deal is designed to accelerate the group’s penetration of the potentially lucrative business-to-government market.

As governments start to legislate for online gambling markets, their state lottery operators need online poker, bingo and casino and other internet gaming products to remain competitive, according to Mor Weizer, chief executive.

Earnings per share rose from 17.9 cents to 29 cents. Playtech is recommending a final dividend of 9.4 cents, bringing the total pay-out to 18.3 cents (15.2 cents).

Shares in Playtech, which came to Aim at 257p in 2006, rose 4½p to 507½p, giving a market capitalisation of more than £1.2bn.

● FT Comment

Playtech is building momentum through a combination of acquisitions, strategic joint ventures and a focus on penetrating newly-regulated markets such as Italy. With more gaming companies and even state-owned gambling monopolies looking to develop or strengthen their online offerings, the company is well placed for future growth. Yet at about 12.9 times estimated 2010 earnings, Playtech shares trade at a discount to all but Sportingbet in the online gaming sector. Given the market is forecasting earnings growth of 16 per cent at the company next year, there could be value here.