GOOD PUBLICITY FOR PLAYTECH

1 August 2008

MoneyObserver characterises Isle of Man gambling software company as a global leader


Online gambling software and games developer Playtech received a publicity boost this week from MoneyObserver, which described the London-listed company as a global market leader that has recently graduated from the Alternative Investment Market to the FTSE Mid 250 index.

"The company's elevation means it will attract attention from the wider investment community, rather than just funds dedicated to a sub-sector of the market. Playtech is a fast-growing, serious business with a big future. Its share price, which has almost doubled from the 2006 flotation price of 257p, reflects this," the report notes.

MoneyObserver points to a growth over nine years culminating in a current market capitalisation of GBP 1.2 billion, with profit margins of some 70 percent.

"Its software supports some of the world's leading gaming sites, many of which operate from the shade of tax-efficient jurisdictions in minor countries," the report continues, noting that the company is incorporated in the British Virgin Islands, its head office is in Douglas on the Isle of Man and it has a board of mostly foreign nationals.

"We have a tax bill of just 1 percent," boasts chief executive Mor Weizer (33) who, the article observes, is not exactly thrilled to be located on a misty island in the Irish Sea!

MoneyObserves reports that Playtech's technical centre is in Tallinn, the Estonian capital, where it is the country's second largest information technology firm. Despite establishing an IT academy there, Playtech has been hampered by recruitment difficulties from Estonia's population of just 1.2 million, so the company has recently opened development outposts in India, the Philippines and Bulgaria, which, Weizer says, has a similar culture to Estonia and is cost-effective.

Playtech's list of customers – 59 and growing – include Paddy Power, Party Gaming, BetFred and Victor Chandler, with 33 of the company's licensees converting to the Playtech platform from other providers.

Weizer told the publication that he believes there is still ample organic growth left in the online gambling software market. "There are still many licencees that we can take – there are hundreds of online operators out there. The number of software companies, though, is limited. There are many smaller providers, but only a few top or second-tier providers – say, six to 10," he said.

Playtech's income derives from a percentage of its licensees' gaming revenue, on which Weizer declined to elaborate. "I can't say what that percentage is. Our net margins, however, are 67 percent," he said, adding: "We provide a platform for growth, and we offer opportunities for operators to grow faster than operators of other systems."

According to Weizer, the company is pleased with the growth and popularity of its poker offering, where he claims that the iPoker network has been growing player liquidity that translates to 25 000 online players at peak times, playing with stakes from 10 cents to $100.

"Poker is our fastest-growing game," said Weizer. "We are now seeing inquiries from operators who want access to that liquidity pool. With more than 25 operators already using our platform, this allows for great marketing ideas. We've just finished a 10-day event with $3.5 million in prize money."

Weizer revealed to MoneyObserver that each licensee signs a three-year contract, a deterrent to competitors aiming to poach business.

"There are big barriers to entry and no significant competitor has been founded since us," Weizer boasts. "We develop our software in association with our licensees. It is very hard for any competitor to get access to this knowledge. They would have to find a well-established operator and work with them for a few years to develop a knowledge of our systems – a major technical barrier."

Playtech's CEO discloses that the company has a pipeline of many new games, including mahjong. "We expect to have it in operation by the end of this year. The software has taken time to develop to eliminate the possibility of player collusion. The cost to licensees of adding additional games is marginal, and many of our licensees are still underdeveloped in terms of the number of games they offer."

The company is also developing person-to-person games, largely for the Asian market, including China, where people play cafe games for prizes and small sums of cash. It is also expanding its land-based video betting game, where a joint venture will introduce 500 machines in Ukraine alone.

On the downside, MoneyObserver notes that recent turmoil in the stock market has clearly had an impact on short-term expectations for the share price, which has eased from 553p to 492p over the past month or so, but as with gamblers, these broking analysts appreciate the transitory reality of the present.

JPMorgan predicts Playtech revenues will rise from last year's $104 million to $271 million by 2010.

For the full article, visit: http://www.moneyobserver.com:80/content/playtech-plays-its-cards-right

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