Playtech made waves back in June when it launched the 400p per share offer in the wake of Plus500’s regulatory problems. However, the Plus500 deal has failed to win the approval of the Financial Conduct Authority (FCA). Playtech said this morning that the decision to abandon the deal was the result of “concerns” raised by the FCA in discussions last week.
Although the Playtech bid was originally seen as a lifeline for Plus500, the last five months have given the firm some breathing room. While Plus500 shares fell by as much as 20% when markets opened this morning, they quickly bounced back again.
As I write, it’s Playtech shareholders who are nursing a loss and are down by nearly 10% so far today.
In this article I’ll ask whether either company is a buy after today’s news.
The sharp rebound in Plus500 shares this morning was probably the result of a bullish trading update put out by the firm today.
Plus500’s management said that trading remained strong and declared an interim dividend of $0.2121 per share, along with a $20m share buyback programme. The group said that it had a cash balance of $95m at the end of June and has continued to generate cash since then.
Today’s interim dividend alone gives the firm’s shares a prospective yield of 3.9%, but a final dividend payment is also expected which could take the yield to over 7%. What’s less clear is how badly this year’s regulatory issues will have affected profits. Management said today that profits are expected to be lower than in 2014.
However, at around 350p, Plus500 shares trade on just 7.5 times forecast earnings. That seems cheap enough to reflect the known risks.
If there really are no more unpleasant surprises, these shares could be a rewarding buy.
Playtech shares have had a decent run this year, and remain up by around 14% despite today’s 10% drop.
However, the shares didn’t look cheap before today, and I suspect the outlook may now worsen.
Playtech was hoping to kick-start its expansion into the financial sector with acquisitions. It has now been forced to abandon its pursuit of Plus500 and warned the market today that the acquisition of online CFD broker Ava Trade is also looking uncertain. The Central Bank of Ireland has opposed Playtech’s bid to acquire Ava. Playtech is currently appealing this decision but it could be a deal breaker.
This could leave Playtech facing some awkward questions from investors, who stumped up €250m in a placing earlier this year to fund these acquisitions. They may wonder why both the FCA and the Central Bank of Ireland have raised concerns about Playtech’s planned deals.
Playtech shares currently trade on 17 times 2015 forecast earnings and with a prospective yield of 2.6%. The shares look fully priced to me, and I can’t see any obvious reason to invest.
Although Plus500 does seem more attractive than Playtech to me, I think there are safer options elsewhere in the UK market.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.