In a rising market, a notable faller is Playtech after the gaming technology group said the Central Bank of Ireland was opposing its planned takeover of Ava Trade.
The company said it would be seeking clarification from the CBI about the $105m takeover, but its shares have fallen 18p to 810p on concerns this could also affect its £460m deal to buy trading business Plus500 - which is still awaiting approval from regulators - and hamper its move into the financial sector.
Playtech said it was working towards securing the outstanding UK approval for the Plus500 deal, having received approval from the Cyprus Securities Exchange Commission. Analyst Nick Batram at Peel Hunt said:
News that the Central Bank of Ireland has opposed the Group’s acquisition of Ava Trade is undoubtedly a setback. The questions are, whether this is just a temporary issue and isolated to Ava or whether there is a read across to Plus500? Given the scale of Playtech’s ambitions in financials, this uncertainty is not conducive to share price outperformance until there is some clarity. Therefore, we put our recommendation under review.
In the grand scheme of things Ava Trade is not a material transaction, however, it clearly creates uncertainty around the Plus500 deal. We don’t know whether the [Financial Conduct Authority] will be influenced or not by the CBI, but the Plus500 deal is already taking longer to complete than originally expected. Although neither Plus500 or Ava Trade are in our forecasts, failure to conclude the former would be a serious blow to Playtech’s ambitions in financials. The core gaming business remains robust but while there is significant uncertainty around such an important component of the group’s strategy, the chances of share price outperformance is remote.
Meanwhile Canaccord Genuity said:
There is no direct read-through to the £460m acquisition of Plus500 deal, where there have been some delays to regulatory clearance - it is still awaiting approval by the FCA, although the Cyprus regulatory, CySec, has given clearance. But this announcement will clearly raise some concerns over the potential for the FCA to block the Plus500 deal.
Both the Ava Trade and Plus500 deals had been expected to complete by the end of September, so this is undoubtedly a surprise. Playtech remains confident that it can address the regulatory issues, but without knowing what are the precise concerns, it will be difficult for investors to fully assess the risks.
Given the uncertainties on timing, we are now stripping out Ava Trade from our forecasts for 2015. As a result, Ebitda comes down from €261.3m to €256.5m, driving earnings per share down from 64.6c to 63.3c, a 2% downgrade. We still assume a full contribution from Ava Trade for 2016 (we are forecasting a €20.1m Ebitda contribution). If the Ava Trade deal was blocked, it would knock 6% off our 2016 earnings forecasts.
