Playtech looks set for a good 2017

Bad timing can be good timing. Let’s talk about bad timing first. Look at the chart below of the British pound versus the euro on the two boxed dates, June 29, 2015 and July 4, 2016. Between those two dates, the British pound fell 16.4% against the euro on a closing basis. Playtech booked its last midyear results on June 30th 2016, one week after the Brexit vote crushed the pound. Playtech holds its cash primarily in pounds sterling. The result was that its earnings were crushed badly.

From H1 2015 to H1 2016, revenues were up 18% but net profit fell 31%. Had the pound not crashed, profit would have been up 54% constant currency. Had the Brexit vote taken place one month later, Playtech would likely have reported much better bottom line results last June.

But it’s also good timing, because the pound will come back up. It hasn’t yet, which means Playtech’s next earnings report won’t get that huge boost coming to it when the pound recovers, giving investors more time to get in. The stock hasn’t moved that much on net from June to June and still hasn’t, which means the company’s shareholders understand the artificial nature of its earnings fall. But even so, when the pound reverses and those bottom line numbers look inflated, it will probably attract extra buying from traders/algorithms looking for impressive earnings results, as artificial as they may be. Another way of looking at it is if Playtech shares can withstand such a hit to earnings, we’re looking at a fundamentally strong company.

A rising pound is an extra plus for Playtech because Eurozone business will be hurt by the next episode, but a rising pound should mask some of that damage, which will make Playtech look relatively stable in stormy seas. That should attract more institutional investment looking for safer plays, not to mention that Playtech pays a nice dividend as well at about a 7% yield at current prices, counting recent special dividends. This kind of payoff and relatively stable looking chart is going to attract capital in its own right from technical traders who know little about the gaming industry.