View from the City: Turning Playtech around
Julian Buhagiar, co-founder for RB Capital, on Jason Ader's strategy for doubling Playtech's share price which has dropped 50% in the past year
Jason Ader is not a new name to the gaming world. In the last 10 years his activist strategies – mainly while spearheading SpringOwl Asset Management – have reshaped significant portions of the industry, notably IGT, bwin.party and Amaya.
His hedge fund has now turned its sights on Playtech, on the back of a 50% drop in share price (at the time of writing it is trading at £5.05 per share, down from £10.20 just a year ago). The pattern is clear and reminiscent of many activist takeovers; which gradually buy equity of a devalued (but highly valuable) organisation at a depressed price, until they get to a threshold where they can start effecting change.
Alongside Crispin Odey (the London-based, Brexit outspoken, hedge fund activist), the pair have acquired just under 10% of Playtech PLC between them. On the face of it the mandate seems clear – there is a high level of distrust in the current management strategy, and a significant opportunity to ‘improve [Playtech’s] reputation, governance and stock price’, which is usually followed swiftly by aggressive management swap outs and rethinking its strategy.
Is this however the activists’ core strategy? Doubling Playtech’s current share price is within reach, mainly because (a) it’s been done before, and (b) it’s likely to happen anyway (as some insiders believe) with a change in corporate governance and strategy. But there is scope for even higher returns. The financial services division, currently contributing 10% of overall group revenues, is viewed by many as an easy sell-off, and further asset consolidation is usually one of the best medium-term strategies to convince shareholders that the business is focusing on core strengths rather than attempting to cover all (technology and marketing) bases.
More importantly, the developing opportunities have changed significantly post-PASPA, and it is thus not unreasonable to consider a more aggressive stance in the US, particularly as they are said to be in the process of securing a New Jersey licence. Having an activist strategy pursue a market that is closer (and more influential) to home is on the cards.
Thus, while an outright sale should not be on the horizon anytime soon (not until the previous valuations have been achieved anyway), the activists are likely to focus on a three-pronged strategy for Playtech; change in corporate governance, selling non-core assets, and a stronger US focus.