Sunday, September 4, 2011

888 a logical buy for PTEC?

Time for some totally random speculation.

Interesting recent statements for PTEC:
 Playtech is increasingly consolidating its position as the supplier of choice for technology and services for the worldwide online gaming industry ... The Board has determined that due to exceptional joint venture and near term acquisition opportunities currently under discussion in certain key markets, it will defer a decision over the interim dividend until the final results for 2011, in order to retain maximum flexibility.

 There are 3 interesting major shareholders in 888: E Shaked Shares Trust, O Shaked Shares Trust, and Ben-Titzak Family Shares Trust; "The Israelis". Together, they hold a combined value of £57.9m, out of a market cap of £106m (55%).

888 has been a fiasco lately. Maybe a shakeup would be something that the Israelis would welcome, and PTEC might be able to do that with a purchase (at the right price).

There's some other interesting angles to consider. 888 has a market cap of £105m, and net cash of £37m. That would give it an EV of £68m. Well, PTEC has net cash of £56m, so a buy would look within reach. Also, 888 has an EV/EBITDA of 3.92, compared to PTEC of 7.33 (according to SharelockHolmes). So PTEC might view it as value-enhancing.

Compare that with, say, BPTY, which has a market cap of £1bn, net cash of £180m, and EV/EBITDA of 13.52. BPTY is too big (although in the world of finance, that doesn't necessarily stop anybody) and probably too expensive to be interest to PTEC relative to 888.

I'm not saying it's going to happen, of course, I'm just putting down a marker so I can claim bragging rights if it does.

I was seriously considering adding 888 to sticky situations, but decided against it. Their ROE doesn't seem especially high. The Earnings Yield looks good, but given the instability of the earnings, it's difficult to determine if the return will be exceptionally high, or only mediocre. I like the restructuring angle, but I have doubts about the competency of the board. To buy a company, and then basically write it off a year later as a mistake is a great cause for concern. Also, my sticky sits already has a gaming company in it.

It's an interesting setup, and I have a feeling that the odds are good. I am keen to keep an eye on this one to see how this one plays out. I'm not brave enough to commit, though.

No comments: