Investors in Playtech (LSE: PTEC) have endured more than enough ‘fun and games’ lately, with the stock falling 20% in the past 12 months. However, this has also shifted the FTSE 250-listed online gambling and financial trading technology firm into bargain territory, so should you be buying?
Software, hard times
Playtech’s joystick snapped last November when, after years of steady growth, management warned the company was set to miss its performance targets. Investors were already concerned about the impact of merger talks with GVC Holdings on Playtech’s contract to provide gambling software for Ladbrokes, as well as billionaire founder Teddy Sagi’s long-term intentions, after he dumped stock last June to fund a move into real estate.
Shares took another knock in February when the company revealed an 11% year-on-year drop in revenues at its B2B Gaming division for the first 51 days of the current Q1, albeit against strong comparatives in Asia. That overshadowed better news elsewhere, notably in its full-year 2017 results, which featured 29% revenue growth to €84.9m and 73% adjusted EBITDA growth to €27m.
Game theory
Strong cash generation allowed a 10% increase to the full-year dividend. Playtech currently offers a forecast yield of 4.6%, covered exactly twice, which is attractive. The stock is also sitting comfortably in bargain territory, trading at a forecast 10.9 times earnings.
Its prospects look fairly steady, if City analysts are to be believed, with forecast earnings per share (EPS) growth of 5% in 2018 and 8% in 2019. By then, the yield should hit 4.9%. Be warned, revenues and profits are expected to dip slightly this year, before recovering next. More bad news would be a buying opportunity. However, at today’s valuation you already have an opportunity, as my fellow Fool Rupert Hargreaves recently noted, citing healthy profit growth.
Get Meggitt
Rupert has also been talking up prospects for global engineering and defence business Meggitt (LSE: MGGT). This is the second of my FTSE 250 bargain dividend stocks, arguing that its position as a designer and manufacturer of high-performance components and sub-systems for aerospace, defence and other specialist markets gives it strong defensive characteristics.
However, that hasn’t stopped the share price from tanking 18% in the past six months, amid wider energy market weakness, and despite halfway decent full-year 2017 results. Meggitt posted a 42% jump in free cash flows to £186m, a 34% increase in statutory profits to £262.4m, and a 105% surge in EPS to 45.2p. However, in underlying terms, EPS edged up just 1% to 35.3p a share, while organic profits before tax dipped 1% to £357.9m.
Defensive play
Meggitt stands to benefit from Trump’s corporate tax cuts, while chief executive Tony Wood said cost-cutting, non-core disposals and new contract wins leave it nicely positioned to accelerate growth over the medium term. That also allows the board to engineer another 5% on the full-year dividend.
The stock is available at a relative bargain price of 13.6 times earnings, although this may reflect what could be a bumpy 2018, with forecasters predicting an 8% drop in EPS. However, EPS are forecast to rise 8% in 2019, and there’s a generous dividend to tide you over, with a forecast yield of 3.8%. Worth a look.
