Troubled online trading firm Plus500 Ltd (LSE: PLUS) has announced a 400p per share takeover offer from Playtech (LSE: PTEC).
The offer is in cash and values Plus500 at £459.6m, doubling the firm’s valuation from its recent low of 198p per share.
Plus500’s management appear to have snatched victory from the jaws of defeat.
Although the offer is little more than half May’s all-time high of 781p, I reckon Plus500 shareholders should be happy, given the havoc caused by the recent anti-money laundering review.
In this morning’s statement, Plus500’s management admitted that the firm’s board now expects group revenue in 2015 to be lower than in 2014, with profit margins expected to be “significantly lower”.
The combination of falling revenue and lower profit margins suggests profits will collapse this year. Had Plus500 remained independent, this could have led to a dividend cut.
Ultimately, many Plus500 shareholders will have done very well. The AIM firm listed at 115p in July 2013. Today’s 400p per share offer equates to a 247% gain in less than two years.
What about Playtech?
Investors probably know Isle of Man-based Playtech as the provider of online betting technology for Ladbrokes and a number of other well-known brands. The firm has historically been focused on gambling and sports betting, but is building a presence in the financial trading market.
Playtech recently acquired TradeFX, an online CFD and binary options trading platform for €250m. The firm’s offer for Plus500 is part of a plan to increase the firm’s scale in this sector. Combining TradeFX and Plus500 is likely to deliver considerable savings.
Playtech expects to be able to improve the lifetime value achieved from Plus500 customers and to reach new markets by combining the two businesses. Plus500’s management have committed to stay with the business for 12 months to ensure a smooth handover.
Is Playtech a buy?
Playtech’s acquisition of Plus500 is expected to complete in September 2015, but are Playtech shares still a buy?
The firm’s shares fell by around 4% when markets opened this morning, suggesting a cautious welcome for this big money deal.
I reckon it could work out well, though. Playtech currently trades on a 2015 forecast P/E of 18.6, falling to 16.1 in 2016. The firm believes that both the TradeFX and Plus500 deals will boost earnings per share immediately, suggesting that broker forecasts for 2015 and 2016 may now be increased.
Indeed, consensus forecasts for Playtech’s 2015 earnings have risen steadily over the last year, from $0.56 per share in June 2014 to $0.65 per share today. If this trend continues, Playtech shares could rise significantly from here.
To reward patient shareholders, Playtech offers a 2015 prospective yield of 2.3%, rising to 2.8% in 2016. All of the firm’s previous dividends have been covered by free cash flow, suggesting these payouts should be safe.
I believe Playtech remains a buy and could deliver further gains following today’s news.