US Edition Playtech
349p +1¼
Questor says HOLD
Gambling software group Playtech posted interim results that were a touch higher than expectations – but these expectations had been lower following a profit warning. Nevertheless, it was still a good result. However, there are still issues that need to be addressed.
Importantly, the company said it planned to strengthen its corporate governance and improve communication with shareholders and analysts. This is good news. But, after the company shocked the market earlier this year with a profit warning that left management's reputation in tatters – is it enough?
The company provides software and managed services for online gaming platforms. It recently struck a deal with William Hill relating to its online assets. As a result, Playtech now owns 29pc of William Hill Online (WHO).
Playtech issued a warning in July. It said that full-year earnings would be lower than market expectations "owing to the slower-than-anticipated start to WHO and the general challenging economic environment impacting some of our licensees".
However, just one minute after this statement was released William Hill said that it was comfortable with the market consensus for its online business in 2009.
Patently, this caused a serious management credibility issue for Playtech and its chief executive Mor Weizer. The share price dipped sharply and they are now trading at a significant discount to peers.
PartyGaming shares, for example, are trading on a December 2009 earnings multiple of 17.4 times, 888 Holdings is trading on a multiple of 13.8 times, with Playtech lagging behind on 10.4 times.
Questor is convinced that if this credibility issue with Playtech's management had not arisen, the share would be trading on a significantly higher rating. This is because the prospects for the WHO venture are actually very good, although there are still some doubters around.
Positively, the company is putting a number of measures in place that will start to rectify the issue.
A new company secretary is in place, the non-executive directorships on its board will be beefed up. The group is also trying to recruit and experienced investor relations strategist to "continue the company's development of shareholder and investment community communications".
Questor recommended buying the shares after the group's first quarter results statement, which was upbeat and bullish. They were recommended at 425p on March 22.
Following the solid interim numbers, which were released on Thursday last week, the shares are now 18pc below their initial recommendation price.
The company also expects a better performance in the second half of the year as a number of new licensees start to make a contribution. Its Italian poker network is Italy's third largest network and now has a market share above 15pc, which is very solid progress. There are also potential opportunities in countries such as France.
So all in all the operating future looks bright for the group – and those investors who bought in on the initial recommendation should continue to hold.
However, Questor would not advise putting any new money into the shares for now.
Afren
69½p +½
Questor says BUY
With the US actively seeking to reduce its reliance on Middle Eastern oil, West Africa is at the head of the queue to provide it with a large chunk of its energy needs.
The US aims to buy 25pc of its oil from the area by 2015, up from the current 15pc. This is an opportunity for Afren – and the shares were recommended on this basis on July 2 at 58½p.
The company is developing the offshore Ebok field in Nigera, but recent positive newsflow concerned an adjacent block called Okwok.
Two weeks ago, Afren said it had entered into a joint venture with Addax Petroleum to develop the Okwok field. In return for funding drilling of one exploration well, Afren will farm-in for a 28pc interest of Okwok. The prospect has estimated recoverable reserves of more than 70m barrels.
Okwok reserves also have the potential to be upgraded because there are two prospects that could add 52m barrels.
Initial oil from Ebok is expected to be pumped in the first half of 2010. Ebok is adjacent to producing fields operated by a joint venture between ExxonMobil and the Nigerian National Petroleum Corporation.
Current gross output at the adjacent site is about 850,000 barrels of oil equivalent a day.
The shares are trading on a December 2009 earnings multiple of 13.4 times, but this falls to just 4 next year as more production kicks in. The company pays no dividend. The shares are up 17pc since their recommendation and remain a speculative buy.
Group NBT
257½p No change
Questor says BUY
Goup NBT was recommended as a buy on March 13 at 214½p. The shares have risen 20pc and remain a buy ahead of their full-year numbers on September 24.
The company, which used to be known as NetBenefit, saw its share price collapse when the internet bubble burst at the start of the century. The group is now a market leader in the provision of internet-related services such as domain name registration and renewal and online brand protection.
As more domain names are registered, companies are increasingly outsourcing their management to companies such as Group NBT. Current customers include Centrica and British Airways.
Managing domain names can be an administrative burden for businesses and NBT estimates that 50pc still perform this task in-house. There are a staggering 180m plus domain names that have already been registered and this is growing at a double-digit rate each year.
Next year it will get even more complicated. So-called top level domain names will be expanded. There are the suffixes as the end of a web address such as .com and .org. New suffixes could include .eco for environmental sites plus new country suffixes.
The shares are trading on a June 2010 earnings multiple of 12.4 times, falling to 10.6 times in 2011, which is hardly demanding for a company that should see solid growth over the next few years. The shares remain a buy.