Gamesys winning run continues with latest strong trading update

It may not be a household name but Gamesys is one of the ten best performing stocks in the FTSE 350 index in the year to date and the leader amongst betting and gaming service providers and its upbeat third-quarter trading update helps to show why`. Sales rose 31% year-on-year on a like-for-like basis in the third quarter, after advances of 27% in the first half and 19% in the first three months of the year, while cash flow remains strong and net debt continues to come down.

That cash flow will help to fund dividends too. Gamesys paid a maiden dividend of 12p per share at the first half stage, in marked contrast to the FTSE 350’s other four listed bookmaking, betting and gaming service providers, 888, Flutter, GVC and William Hill, all of whom have cut or passed at least one distribution (although 888 has since boosted its interim dividend for 2020).

The company is also discussing the subject of share buybacks, to suggest faith in ongoing cash flow and operations is strong. If Gamesys does go down this path, a buyback would make more sense than it does at many firms, since the shares still look cheap, even after their stellar run in 2020.

Source: Sharecast, consensus analysts’ forecasts, Refinitiv data

The company’s fortunes now are a world away from when it first listed on the London market in early 2017.

Many investors approached the firm back then with more than a degree of caution, thanks to its move away from the Toronto Stock Exchange to London, its debt pile, a name change (to JackpotJoy from Intertain), and an acquisitive history and – in some cases – broader concerns over gambling and gaming, for either regulatory or ethical reasons.

But the company has gone on to prove itself, despite two more name changes (to Jackpotjoy and then JPJ), tax increases in the UK and another acquisition, but that June 2019 deal has proved a huge hit so far. Still named JPJ at the time, the company struck a £490 million cash-and-stock deal to acquire platform software provider Gamesys, bringing in new brand licenses, a wider range of games, executive expertise and the new group name, at the same time as snuffing out the concern that the target could become a competitor rather than a supplier.

Betting and gaming has been one of the few industries to get a boost from lockdowns the world over, and Gamesys is active in not just the UK but Europe, Asia and Japan as well. It has no shops and no exposure to sports betting, offering online slots, casinos and bingo instead, and management takes regular to pains to emphasise how hard Gamesys works to promote responsible gambling and tackle problem betting.

This is the right approach from an ethical and regulatory perspective, especially as a major review of the UK’s 2005 Gambling Act is in the pipeline and the prospect of tighter rules and higher taxes cannot be entirely ruled out.

If regulation remains one potential risk, then investors also need to remember Gamesys’ acquisitive history. There is always the chance of more deals, especially as the trend toward deregulation in the USA contrasts so strongly with many markets worldwide, where betting and gaming face ever-greater scrutiny. The US could therefore provide a tempting target for Gamesys and shareholders would need to assess any potential purchase in light of the valuation paid and the returns on offer.

These articles are for information purposes only and are not a personal recommendation or advice.