Saturday, October 15, 2011 : Panmure Gordon details its five picks, but is less enthusiastic about Playtech and Bwin.
Top London broker Panmure Gordon is upbeat about prospects for the online gaming sector, and this week has detailed its five picks for e-gaming shares worth buying.
Analysts explained that although e-gaming shares have underperformed the market over the past year, the companies concerned have strong balance sheets, earnings are growing and the sector is moving towards operating in a regulated and taxed framework.
"We think most companies traded strongly over Q3 and valuations appear undemanding,” said the broker in a research note published Friday. “However, with earnings difficult to forecast with high conviction as countries move to a regulated and taxed framework, the market is applying a significant discount to our estimate of fair value.
“We continue to favour a basket approach to the sector as all companies are employing slightly different strategies to achieve the common aim of maximising revenues from regulated markets.”
Industry consolidation was also considered by the broker, which concluded that the trend remains problematic, given the divergent views between vendors and buyers on price, perception of brand value and interpretations of legacy legal risk.
"However, regulation is accelerating, with 2012 likely to be a seminal year for the sector as Spain, Greece, Denmark, the Netherlands and Germany move to a regulated environment," the report noted.
The note lists the following as five shares worth buying:
888 Holdings (LON:888): 888 poker is “inexpensive” due to its trading on a 2011 EV/EBITDA ratio of 4.1 times, according to the broker, which set a price target of 53 pence for the shares. The company is an "opportunity for significant near term gains" the broker concluded;
Betfair (LON:BET): Company performing well, and the shares are relatively inexpensive, but regulatory uncertainty, the slow progress of the LMAX betting exchange and management changes have combined to provide “significant headwinds”;
NetPlay TV (LON:NPT): Strong financial performance as it refocuses on its core Supercasino offering following its bingo troubles earlier this year;
Sportech (LON:SPO): Occupies a unique position in the regulated UK, US and Netherlands markets and has solid potential;
Sportingbet (LON:SBT): Having sold its Turkish interests, the company is now “in much better shape” than before Ladbrokes’ approach in June.
“All offer substantial upside potential,” said the broker.
On the negative side, Panmure downgraded bwin.party and Playtech from ‘buy’ to ‘hold’ because of the near-term uncertainty around German regulation in respect of bwin.party, and concerns about future joint ventures and acquisitions, as well as capital structure, at Playtech.