Investment Column: Playtech's California deal is a good bet

Capital Pub Company; Creston


Our view: Buy

Share price: 335p (+15.25p)

Investors could be forgiven for greeting news of another poker deal with a resigned shrug of the shoulders. Why, then, did Playtech's shares take off as if the company had been dealt a pair of aces yesterday?

The AIM-listed gambling software group yesterday announced a licensing agreement with the California Online Poker Association (Copa), which is made up of a coalition of Native American governments and licensed card rooms in the Golden State. Its Sciplay International joint venture will also provide Copa with "play-for-fun" internet games.

To any poker player, "play for fun" without real money is much like going in the bath with wellington boots on. But that's not really the point.

These deals provide Playtech with a firm foothold in the market for when – and it is only a question of when – the US government legalises online gaming, not least for the tax revenues.

If the federal authorities play slow, California may beat them to the post. With a yawning budget deficit of its own and a loud and vociferous lobby from enthusiasts (it's America's biggest poker market), it could go down the route of state licensing. Either way, Playtech is sitting pretty. But even though yesterday's deal may take months or even years to realise its potential, Playtech's shares look like winners on valuation grounds. The company trades on under 10 times forecast earnings for this year, falling to 8.5 times on the estimates for next year; and it yields 5 per cent.

Playtech has had its issues: it took a long time to find a finance director and a move from AIM to the London Stock Exchange's full list was delayed, albeit largely for technical reasons.

We first backed the shares at 478.2p in February 2010 and then said "hold" at 419.75p in November. They've been on the slide recently and there are risks, not least if William Hill exercises its call on the two companies' joint venture. All the same, the stock looks very cheap, given its potential. We're ready to switch our stance.

Capital Pub Company

Our view: Hold

Share price: 200.5p (+9.5p)

The Capital Pub Company posted annual profits up 48 per cent yesterday and came out fighting after news on Friday that it had received two takeover approaches in as many months from Fuller, Smith & Turner.

Capital, which has 34 pubs primarily in London, said Fuller's second 200p-a-share offer in April, which valued its equity at £53.9m, "substantially undervalues" its business.

This was despite Capital's shares closing at 155.5p on Thursday. Capital said its sales are up 20 per cent over the past 10 weeks, that it had resumed paying dividends, and that it planned to grow to up to 50 pubs over the next two years. It also cast itself as a "scarce and valuable asset", as the last remaining independent freehold London-based pub company.

Furthermore, the group said that Fuller's indicative offer values the group at 8.9 times historic underlying earnings, which is less than the 9.8 multiple paid by Young & Co Brewery for Geronimo Inns and only slightly more than Greene King's recent purchase of Realpubs.

Certainly, Capital, which grew profits to £4.1m in the year to March, has real momentum, though its shares now trade on a forward earnings multiple of 16. Some City analysts believe Fuller's may come back with a bid in excess of 250p, but we are not convinced of the rival's appetite extending to much beyond 200p.

Creston

Our view: Buy

Share price: 120p (+8p)

The latest financial year marks a decade of operations for the communications group Creston, and boss Don Elgie was popping the champagne corks yesterday. He said 2011 had been a "significant and successful year" with revenues up 7 per cent to £67.8m.

Creston reported that it had pretty much wiped out its £25m of debt and tripled its full-year dividend to a record high of 3p. There was a downside in the Insight division, where revenues dropped 7.5 per cent, and there is one significant contract renewal which could provide a downside risk.

That said, at 6.7 times forward earnings, the stock is cheap, particularly as management looks like it has a "clear view of its strategy", as Charles Stanley noted. We agree and believe Creston has some strong prospects for growth.

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
PROMOTED VIDEO
Voices
Joseph Kynaston Reeves arguing with Russell Brand outside the RBS’s London offices on Friday
voicesDJ Taylor: The great tradition of St Paul and Zola reached its nadir with a worker's rant to Russell Brand
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
News
i100
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
News
Xander van der Burgt, at the Royal Botanic Gardens, Kew
scienceA Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick