As Playtech is gobbled up, is this FTSE 250 stock next?

Paul Summers wonders whether this top-performing FTSE 250 (INDEXFTSE: MCX) stock might now find itself subject to a takeover approach.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Yesterday’s news that gaming software supplier Playtech (LSE: PTEC) will likely be snapped up by Australia-based Aristocrat Leisure for £2.7bn shows that the takeover frenzy of UK-listed companies shows no sign of abating just yet. Is fellow FTSE 250 firm 888 Holdings (LSE:888) another potential candidate? Today’s trading update from the online betting and gaming firm certainly makes the company an attractive target.

Game on

Total revenue rose 7% to just under $230m in the three months to the end of September. As usual, the vast majority of this ($220.3m) came from the company’s business-to-consumer (B2C) division. Here, an 11% rise in gaming revenue was logged. This is impressive when it’s considered just how good the previous year was for the company, thanks to people being forced to stay at home (and surf online).

On the downside, a 15% fall in betting revenue was also reported from this part of the company, due to the “condensed calendar of sporting events” happening in Q3 last year. Even so, B2C betting was still 21% higher compared to Q3 two years ago. For me, this is a far better way of gauging just how quickly the company’s growing. 

All of the above brings 888’s revenue for the year-to-date to $758.3m. That’s a rise of 28% compared to January-September 2020.

But can this last?

The fact that 888 continues to rake in cash following the lifting of restrictions bodes well. For its part, management believes that trading over the remainder of 2021 will be in line with expectations. 

Then again, nothing’s guaranteed. Aside from the (admittedly small) possibility that we’ll want to spend less time at our screens, one issue with any gambling-related stock is the potential for increased regulation. 888’s no stranger to this after the Dutch government’s recent decision to launch a licencing system for online betting in the country.

As a result, 888 removed itself from this market at the beginning of October. It now intends to apply for a licence “in the coming months” and be up and running by H2 next year. Even so, the company’s expecting a $10m hit to earnings. This may help explain why the share price is down today.

Will 888 be snapped up?

In a move that could turbocharge profits in the year ahead, 888 snapped up William Hill International in Q3. It also launched SI Sportsbook in Colorado and 888sport in Germany. Having been the hunter for a while, however, I think it’s quite possible that 888 could become prey. 

At yesterday’s close, shares were trading at 20 times forecast 2021 earnings. That looks very reasonable for a company that boasts a strong brand, is growing well, has net cash and consistently posts excellent returns on the capital it invests. Even if a suitor doesn’t come knocking immediately (and I’m against buying solely on this possibility), I wouldn’t rule out further consolidation in the industry in time.

The one that got away

888 is one of those stocks I highlighted as being a potential bargain in the early days of the coronavirus crisis. Unfortunately, it’s not a stock that I went on to buy myself. Had I done so, I’d be sitting on a gain of around 260% by now. Still, one can’t be invested in everything.

Offering a tempting combination of growth and income, I’d be comfortable buying this stock today — takeover candidate or otherwise. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »

Happy couple showing relief at news
Investing Articles

3 passive income strategies I like to try to double the State Pension with just £100 a month

Investing consistently, with diligence, and patience can lead to an impressive stock market income that puts the State Pension to…

Read more »

ISA Individual Savings Account
Investing Articles

£20,000 invested in a Stocks and Shares ISA 10 years ago could now be worth…

Stocks and Shares ISA investors have earned tremendous returns in the last decade, but just how much money has been…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

An 11.5% yield?! Here’s the dividend forecast for a hot income stock

This steadily recovering income stock has the highest dividend yield in the FTSE 250, which looks like it’s here to…

Read more »

Dominos delivery man on skateboard holding pizza boxes
Investing Articles

At 10p, is this penny stock a screaming buy?

This penny stock's growing rapidly, is debt-free, and is about to almost double its store footprint! Could it be on…

Read more »

Mature people enjoying time together during road trip
Investing Articles

How to take an empty ISA and transform it into a potential £50,000 second income

A key requirement of reaching financial freedom is earning a second income. And the stock market provides a way to…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

How much do you need to invest in the stock market to quit work and live off dividends?

Quitting a nine-to-five job and living off dividends from the stock market sounds like a pie-in-the-sky idea to many. But…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Prediction: this UK share could outperform Rolls-Royce between now and 2030!

Rolls-Royce has been on a phenomenal run, but over the next five years, another aerospace business could potentially deliver far…

Read more »