Playtech suffers ‘ant attack’
Is the reappearance of activist investor Jason Ader on the gambling scene via a 5% stake in Playtech really cause for concern, asks Scott Longley?
So Jason lives! Jason Ader that is. The activist investor previously known for his involvement in the Bwin.Party/GVC takeover has reappeared on the online gambling scene.
In late August, it was disclosed that his SpringOwl Asset Management vehicle had built a £100m stake in Playtech, representing about 5% of the company.
The news was accompanied by the usual activist investor claims about where the target company was going wrong. In this case, according to a Reuters report, Ader has chiefly zeroed in on Playtech’s relatively recent venture into the realm of retail financial trading.
“We’re not advocating any fire sale or any rushed transaction, but over time we would like to see Playtech in the gaming business… and not have the distraction of other financial services holdings,” he was reported as saying. “The company and its businesses and its assets are worth significantly more than where the stock is trading.”
This may or may not be true – gauging the true value for any company is an art rather than a science. Just ask Elon Musk.
But any apparent stock market undervaluation of Playtech would appear have little to do with the recent financial performance of the TradeTech retail financial arm. According to Playtech’s recent first-half results, the TradeTech division saw revenues rise 37% for the six months to June to $67.1m, while adjusted EBITDA rose 72% to $30.3m.
On the Plus side
What gives Ader’s claim more legs, perhaps, is the likely coincidental offloading of Playtech’s near 10% stake in listed financial trader Plus500, which also took place last week.
The sale pulled in £176m and represents a near fourfold profit on the price of the shares when Playtech bought them in mid-2015. That was, of course, at the time of Playtech’s bid for the then-struggling rival, which was operating under an FCA-shaped compliance cloud caused by perceived failures with regard to its marketing efforts.
The bid failed partly because of the lack of any FCA approval. Yet, far from representing a near miss never to be repeated, the Plus500 acquisition now looks like it was the one that got away.
FCA worries aside, the company has seen its business boom, largely due to the wave of interest in trading cryptocurrencies. In the first half of the year, Plus500’s revenues grew 147% to $465.5m while EBITDA was up 195% to $349m. Active customers rose 121% to 248,564.
European financial regulators are sniffy about retail financial trading and this has translated into restrictions on the marketing and operating of CFDs and an outright ban on binary betting. The restrictions help explain the less impressive metrics within TradeTech’s results, including the 5% fall in active customers and the 37% fall in first-time depositors.
These issues can only be a (small) contributory factor to the decline in the value of Playtech over the past year and there are clearly bigger problems elsewhere: in Asia, for instance, where the company’s pre-eminent position within the supply market is under severe competitive – and in Malaysia, regulatory – attack.
In a recent note from analysts at Morgan Stanley, of the 10 questions they deemed that investors “might want to question” Playtech’s management about, four are related to China and Asia and only one is directed at the financials division (which admittedly follows Ader’s lead and questions whether TradeTech is “core” to the company).
An activist investor arriving on the scene certainly raises the temperature for any company management. In a recent New Yorker article on the activist attacks by the likes of hedge fund Elliott Management, these investors were compared to “flesh-eating ants”, ravaging all before them in order to “wipe the slate clean”.
Yet, Ader’s attack would appear to be far less existential. Playtech’s management have apparently taken the time to fly to New York to meet with him and in truth a 5% stake is not enough to persuade any board to take on advice that they don’t like.
What is true is that Playtech faces enough issues – Asia, the negotiations with GVC, what to do about the US – without the attentions of an investor with their own ideas about what the company should be doing. Unless Ader buys a chunkier holding, what he says may prove to be by-the-by.
Related articles: Playtech offloads Plus500 stake
Ader builds Playtech stake with $100m investment
Playtech sees ‘viable’ future in Asia despite profit slump