Analysts ‘sceptical’ about Flutter’s £2bn bid for Playtech’s Italian arm

Flutter Entertainment’s potential £2bn swoop on Italian betting firm Snaitech, the consumer division of ‘white label’ gambling technology provider Playtech, has left some analysts unconvinced.

Playtech has granted a period of exclusivity for Flutter to complete due diligence, although the Paddy Power and Betfair owner said at this stage there is “no certainty” that it will proceed with an acquisition.

Analysts at investment bank Peel Hunt said in a note on Monday they are “sceptical” about the proposed deal.

“Playtech’s share price implies Snai may not be sold,” they said, adding that, “if it were, management would choose between returning or reinvesting proceeds.” Peel Hunt believes Playtech remains undervalued and has reiterated its ‘buy’ recommendation and 700p target price.

The London-listed stock is currently trading at 637p, having climbed 25 per cent over the past year and more than 43 per cent year to date, spurred by speculation surrounding the potential Flutter deal.

This isn’t the first time Playtech has been eyed by acquisition interest. In 2022, Playtech shareholders batted away Australian gaming giant Aristocrat’s £2.7bn offer. However, recent changes to the Financial Conduct Authority’s listing rules means that management decides this time.

Could Playtech buy Evoke still?

Last year, Playtech reportedly tabled a £700m bid for William Hill’s owner, 888 Holdings, now rebranded as Evoke.

According to The Sunday Times, sources had suggested the Playtech could merge Evoke’s brands with Snaitech, then spin off Playtech’s business-to-business arm as a separate company.

But Evoke rejected the poach attempt on the grounds that it undervalued the UK-listed bookmaker.

Peel Hunt suggested today that, if Playtech does offload Snaitech, it could use the £2bn from Flutter to instead pursue a merger of its remaining B2B business with Evoke.

Although it would not be as attractive as a merger involving Snaitech, the move could potentially eliminate the group’s net debt, addressing a key concern in their investment case.

“And the market cap of the merged entity would, we estimate, be £2.5bn; much more investable than Evoke’s £283m or the minimal market cap currently implied by the market for Playtech’s standalone B2B business excluding Snai,” analysts explained.

It might also go some way in soothing the headaches Playtech is experiencing with its Mexican client, the gambling site Caliplay. The joint venture between Playtech and Mexican operator Caliente has refused to pay for services amid an ongoing legal dispute.

It has left Playtech with a €122m (£104m) sized hole in unpaid fees from 2023 and 2024, a figure the company is counting on recovering through the courts. Peel Hunt estimates this could grow to £200m by the end of the 2024 financial year if no payment agreement is reached.

“As time passes, our confidence that an agreement is possible fades a little,” said analysts.