Playtech completes €50m share buyback

Playtech completes €50m share buyback

Wednesday, December 21, 2016 Posted by Scott Longley
Exercise takes place as shares struggle

Playtech has completed its pre-Christmas spending spree on buying its own shares after it announced it had snapped up €50m worth as part of its buyback programme within the space of the last fortnight.

The buyback programme was launched in early December. The company said the programme was a sign of the company’s confidence in its growth prospects and its high rate of cash generation.

Companies often embark upon share buybacks when the management believes the shares are trading at a level which undervalues the company. In this case, the programme was launched on the same day that Playtech - along with the rest of the consumer financial trading sector - saw its share price hit by fears over what the Financial Conduct Authority (FCA) proposals with regard to CFDs and binary options might mean for the company’s financials division.

Having enjoyed a decent period in the months since the company first sought permission to embark on a share buyback programme in April, the shares have since slid back from their highs of around 948p in October to its present level of around 785p. This values the company at over £2.49bn.

Analysts are split over the value of share buybacks. While they tighten up the supply of shares available on the open market – which should notionally enhance the value of the shares left in the free float – there are always questions as to whether the company is indeed buying at a time when the shares are at their lowest.

Questions also arise about whether the cash used for such exercises would be put to better use if given back to shareholders via a special dividend.

Playtech noted when it announced the buyback that had recently announced an increased interim dividend and the payment of a special dividend, paid in early December. The special dividend amounted to €150m. The company also committed itself to a progressive dividend policy for the future.

As of the end of June, before the payment of the special dividend, Playtech still had circa €640m of cash on the balance sheet.

Analysts at Morgan Stanley pointed out in early December that the share price would also have been affected by the move on the part of founder and major shareholder Teddy Sagi to offload 12 percent of the stock at a discount to the then price of 8 percent. The sale was oversubscribed and left Sagi with just under 22 percent of the shares.

Totally Gaming says: Share buybacks are perceived by some to be a controversial measure, largely due to the guesswork involved in buying share when the purchaser believes they are cheap. Playtech’s shares enjoyed a tremendous run into the autumn, but the combination of the Sagi sale, the worries over the FCA proposals and the dividend being paid means there has been a degree of sogginess about their performance since.

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