Gambling software firm Playtech (PTEC) has sealed a new long-term agreement with online gaming giant GVC (GVC) until 2025 to provide services to its brands, but is the deal less generous than the previous one?
Shares in Playtech are up 4% at 433p and GVC is flat at 670.3p, implying the market thinks the deal will be better for the former, but this may not be the case.
‘LESS SERVICE AT A LOWER MARGIN’
Broker Shore Capital expects the deal, which replaces a commercial agreement due to expire in 2021, will mean Playtech provides less service and content to the Ladbrokes Coral brand at a lower margin than before.
‘The ability to recover the terms from the original contract will depend on its success in selling its content into the larger GVC player base,’ comments Shore Capital analyst Greg Johnson.
There are no financial details disclosed about the new deal and how it will impact GVC and Playtech.
Johnson anticipates a ‘modest net shortfall’ over the medium term at Playtech despite the company reiterating earnings guidance of €390m to €415m for the year ending 31 December 2019.
This is higher than Shore Capital forecasts, but Playtech's credibility on guidance has taken a knock after it suffered several profit warnings over the last year amid intense competition in Asia and higher online gaming taxes in Italy from the start of 2019.
GVC has also had a tough time on the stock market amid tighter regulation and more competition.
WHAT DOES THE NEW DEAL INCLUDE?
GVC will gain access to Playtech’s products and services, which will be used for GVC’s 50/50 joint venture worth $200m with MGM Resorts International in the US.
More importantly, the GVC-Playtech partnership means the former can capture £40m of synergies from its merger with Ladbrokes Coral before 2021 according to Johnson.
Additionally, the agreement means Playtech BGT Sports will supply Ladbrokes Coral with the software for self-service betting terminals in the UK, Republic of Ireland and Belgium.
