Malaysian gambling crackdown cuts access to one of group’s largest markets. Gambling software group Playtech has reported a fall in profits even as revenues rise, citing “disappointing” market conditions in Asia. The FTSE 250 Company, which makes software for some of the world’s biggest betting groups, said revenues rose 4 per cent to €436.5m in the six months to the end of June compared with the same period last year. Excluding Asia, they rose by 35 per cent.
Net profit adjusted to strip out one-off items — largely the impact of costs associated with acquisitions — fell 34 per cent to €83.3m. However, reported net profit rose 25 per cent to €112.4m. A crackdown on gambling syndicates in Malaysia last year in effect ended the company’s access to what had been one of its largest Asian markets. On Thursday, Playtech said activity in Malaysia had been “significantly lower” in the first half than it had been in 2016 before the crackdown. It also noted a “highly competitive pricing environment” in China. Asia accounted for 36 per cent of Playtech’s business-to-business revenues in the first half of the year.
Company chairman Alan Jackson said that despite “disappointing market conditions in Asia . . . it should be noted the headwinds in the Asian market are not reflective of the core strength of the Playtech model”. To help offset the worsening market in Asia, the company has been expanding in regulated gambling markets. As part of this strategy, it acquired Italian betting company Snaitech this year, which it said had given it a “cornerstone presence in Europe’s largest regulated market”. Playtech said it expected 80 per cent of total revenue for the full year would come from regulated markets, compared with the current figure of 69 per cent.
Although Playtech said Snaitech delivered a “strong performance” in the first few weeks of July and was performing in line with expectations, analysts at Investec flagged the risk of regulatory change. They said it was “possible” that Italian authorities would ban gaming machines, from which Snaitech generates about half its revenues. Playtech has already reduced its number of machines in Italy by about 10 per cent. “Risks related to Asia remain and regulatory changes in Italy do not help. We would remain on the sidelines on Playtech,” analysts at Berenberg said.
In July, the company issued its second profit warning in 12 months citing growing competition in Asia. Shares fell 23 per cent in response. Overall, its shares have fallen 35 per cent in the year to date, but rebounded as much as 11 per cent in early trade on Thursday, albeit from a near 5-year low.
