Playtech (PTEC): What have I overlooked?

Hey TIP'ers,

Long time lurker, first time poster. I hope to get you guys' critical eyes on an investment idea I pulled the trigger on pretty heavily back in November.

Four months back, I spotted Playtech (PTEC), a B2B company whose core business it is to supply digital gambling operators with the software that allows them to run their businesses, i.e. poker, casino games and sports betting. Playtech has grown its revenues, earnings and free cash flow at 20% annually for the last 10 years. It popped up on my screener after a 15% tumble in price due to issues in Asia. It was now trading at £8.3, and I believed it to be worth £15-£20 based on a DCF analysis with a 10% short-term growth rate, a 3% perpetuity growth rate, and a 7.5-12.5% discount rate. During the last few weeks' bloodbath, I have been taken to the woodshed. It's now trading at £7.6, ~10% below my purchase price. Now, I'm very tempted to 'double-down', but PTEC would then constitute 20% of my portfolio – my largest position ever. Before I do so, I hoped you fellows would take a look at my thesis, and let me know if I'm totally bananas.

Specifically, I would love to get your inputs on: 1) Whether my DCF analysis is too optimistic? 2) I list quite a few moat-like features of Playtech; am I being too generous with these assessments? 3) Have I overlooked some obvious risks that could bring the business to its knees?

I couldn't copy/paste my thesis into this forum, as it exceeded the character limit. I hope it isn't too distasteful to refer you guys to my blog! You can find my write-up here: I've only studied value investing for a year's time, so please be gentle :-D

Thanks in advance, guys – and happy investing!


  • Hi @obruhndk

    really a very interesting pic. Especially the margins are just fantastic.
    If there is one thing I do not like totally: The book value is almost completely made up of intangibles, ie. there is no tangible book value. On the other hand, this might be normal in this business - a digital company does not need a big warehouse full of stuff.
    And then this is quite out of my circle of competence. So I would have to put quite some work into this. But surely very interesting.

    I also looked at your other pics and it seems that your investment style is not so different to mine. You had written about Footlocker.. well, Footlocker was the very first pic I wrote an analysis in the academy:

    I have also looked at your pic Matas, but here the balance sheet is really too intangible for my taste. Still, interesting pic.

    My other retail pics include or included: Hibbet Sports (recently sold with 60% gain), Genesco (recently sold with 60% gain),
    Francesca's Holding, Big 5 Sporting Group, Gamestop, Bed bath and Beyond. Small portion of Vitamin Shoppe and Stage Stores (both very risky, but absurdly cheap).

    And then I own Fossil Group. After yesterday's earnings this shot up between 70-100% (!!!). Now only 65% up, but still..
    I plan to make this pic my next analysis in the academy. Should be up within the next week hopefully. Curious, what you think.



  • edited February 14
    @christoph, thanks a bunch for having a glance at my thesis. Indeed, Playtech's balance sheet is highly intangible. Sure, the industry is probably marked by a high degree of intangibles. But I think Playtech's many acquisitions is the main driver of the large 'amount' of goodwill. I wasn't a fan of this aspect either, espcially since it's so difficult to assess whether acquisitions offer shareholder value until (far) into the future. As you mention, the margins are incredible, just like the ROE and past growth. The qualitative aspects, especially the way the business' is structured so that its moat strengthens with each new customer, was what really won me over. If you decide to look more closely into it, I would be stoked to see what you find out.

    Oh, Christoph, you mentioning Hibbet Sports just brought back a painful memory! I was so close at pulling the trigger on this one! I really dived into it, and it looked attractive, but I chose not to since I was so heavily weighted in retail so I eventually went with a pick that was more uncorrelated – well, shoot.. In those situations I try to seek comfort in Nassim Taleb's wise words: "A mistake is not something to be determined after the fact, but in the light of the information until that point." In other words, screw the hindsight bias! :-p

    Interesting that you have had your eye on Gamestop and BB&B – I've been looking into those two for a while as well. It does indeed look as though we have a similar mindset. ;o In length, I'll definitely check out Vitamin Shoppe, Stage Stores and Fossil Group. Looking forward to reading your analysis of the latter; I just read your Footlocker thesis, great stuff man!

    I'll definitely start following your blog, Christoph!

    Thanks again for stopping by my blog post(s)!
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