It felt like a gamble when we tipped Gamesys but a maiden divi suggests it has paid off
The gaming firm has made a success of its £500m purchase of a potential rival and the valuation hints at further gains, writes Russ Mould
THE good things come to those who wait. Better-than-expected interim results earlier this month, strong cash flow and – best of all – a maiden dividend all suggest that the investment case for Gamesys, the online gaming operator, is coming together nicely and that there could be further gains to come.
This column must admit that it first assessed the firm in October 2017 with a degree of trepidation, thanks to its debt pile, a name change (to JackpotJoy from Intertain), a shift in stock market listing (to London from Toronto), an acquisitive history and the knowledge that some investors would shy away from gambling and gaming over ethical concerns or fears of tighter regulation in Britain.
It has not been dull since, either. There have been two more name changes, tax increases in Britain and another acquisition but that June 2019 deal does appear to have been a good one. Still operating under the name JackpotJoy, the company struck a £490m cash-and-stock deal to acquire Gamesys, a platform software provider, bringing in new brand licences, a wider range of games, executive expertise and the new group name, while eliminating the concern that the target could become a competitor rather than a supplier.
Trading in the first half was helped by lockdowns the world over, as the firm is active not just in Britain but in Europe, Asia and Japan too. It has no shops and no exposure to sports betting, and Gamesys’s online slots, casinos and bingo offerings have seen a 14pc year-on-year increase in active players per month as a result.
The longer-term impact of the pandemic on trading is hard to divine and the company has removed its TV and radio advertising to show its awareness of regulatory pressures and social responsibilities. Nothing can be taken for granted, especially as a review of the 2005 Gambling Act is in the pipeline. But cash flow remains strong and that supports the first ever dividend of 12p a share. The stock goes ex-dividend on Sept 10 for payment on Oct 15.
Analysts are pencilling in a secondhalf divi too for a forecast yield of 3.1pc, more than three-and-a-half times covered by forecast earnings according to the same consensus forecasts. That might attract income seekers, especially as the forecast price-toearnings ratio is less than 9. Such a lowly rating could prompt discussions of share buybacks too, although Gamesys is watching the deregulation of the American market with interest as a potential opportunity. Regulatory pressure remains a key unknown but the valuation and developing dividend stream appear to offer sufficient protection and compensation for the risks. Hold.
Update: Resolute Mining
Such are the perils of investing in mining stocks. The gold price remains firm at around $2,000 an ounce and soaring government budget deficits and central banks’ quantitative easing schemes are providing support to the precious metal. Yet shares in Resolute Mining took a tumble last week after a military coup in Mali.
Resolute has two operational mines, one in Senegal and one in Mali; a third in Ghana is under review for potential development. The good news is that work at the Syama site in Mali has yet to be affected by the coup. Moreover, Resolute has operated Syama since 2003, a period that covers another coup in 2012 and long periods of unrest. However, investors are clearly nervous that the promised new government could take a fresh look at the country’s mining laws.
This shows the importance of owning a basket of gold miners and not just one, given the risks posed by local politics and fiscal regimes, as well as the weather, labour relations or geology at individual mines. We shall just have to sit tight for now. Hold.