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 Daily Telegraph - Business - - Business - Russ Mould is in­vest­ment di­rec­tor at AJ Bell, the stock­bro­ker

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.

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