Shareholders in Playtech (LSE:PTEC), the FTSE 250 provider of software, content, and other technology to the gambling industry, have seen the value of their shares fall by around 60% since December 2024.
But all’s not what it seems.
Although the company’s share price looks to have fallen off a cliff in May, this resulted from the payment of a special dividend of $5.73 a share following the sale of one of its businesses. But this is the only payout made in the past five years. Income investors will therefore probably need to look elsewhere for their next dividend cheque.
However, even though this year’s share price performance isn’t quite as alarming as it might appear at first, the company still has two big issues to deal with.
Double trouble
Firstly, it’s operating in an industry that’s being blamed for causing — what economists would describe as — negative externalities. In other words, social harms that remain uncompensated for.
According to the Gambling Commission’s most recent survey, 1.4m adults have (or are close to having) an addiction problem. That’s more than the population of Birmingham. Economic theory suggests that externalities of this kind should be taxed to offset the damage caused.
Whether Chancellor Rachel Reeves was applying lessons learned from her economics degree — or simply trying to fill a hole in the nation’s finances — we’ll never know, but her decision in the Budget to increase taxes on the industry is likely to adversely affect Playtech’s customers.
After she announced an increase in Remote Gaming Duty on online casinos and slots from 21% to 40% (April 2026), and an increase in the Remote Betting Rate on sports bets from 15% to 25% (April 2027), the group said there would be a “high-teens millions of euros before mitigation” impact on its 2026 adjusted EBITDA (earnings before interest, tax, depreciation and amortisation).
Nothing to see here
However, it also noted that its “geographic diversity” and “strong performance and prospects outside the UK” meant it was “comfortable” that it could still meet full-year expectations for 2026.
Of course, other governments around the world could follow suit. And there might be more pain to come from Reeves in future Budgets. But speculation concerning the death of the UK betting industry – if the Chancellor increased taxes and/or duties — appears to be wide of the mark.
The second issue that the group’s having to contend with is legal action from a Swedish rival. Evolution‘s alleging all sorts of skullduggery — which is denied by Playtech, described as “wholly untrue” – dating back to 2021. Ultimately, it looks as though the courts will determine the rights and wrongs.
My view
In my opinion, investors looking for capital growth could consider Playtech. It has a strong track record of raising its earnings. And it’s significantly reduced its debt in recent years.
But those taking a stake should be mindful of the risks. As well as the industry and legal challenges it faces, the sector in which it operates will probably be a no-go zone for ethical investors. This means the pool of potential buyers is likely to be smaller and could limit future share price growth.
However, on balance, those who are comfortable with the industry could consider adding the stock to their portfolios.
