TradeTech to the rescue.
With its gaming operations suffering somewhat due (mainly) to the COVID-19 global pandemic, online gaming and financial services company Playtech (LON:PTEC) reported its first half 2020 results and gave a lot of credit to its B2B/B2C forex business TradeTech for helping it avoid what would have been a very bad six month result.
That being said, as was first reported at FNG in late August Playtech is actively pursuing the sale of TradeTech, stating formally now that it “continues to evaluate all options for TradeTech, and… is in early stage discussions with a number of parties regarding a potential sale.”
Overall, Playtech saw its Revenues drop by 23% as compared to 1H-2019, €564.0 million versus €727.8 million last year. EBITDA was off 16%, €162.3 million versus €192.9 million in 2019.
Playtech shares reacted by trading down about 9% in early Thursday LSE activity. But at about 355p, Playtech shares are still a lot closer to their 52 week high (442p) than their 52 week low (111p).
However as noted TradeTech had what the company called an “outstanding period” with “exceptional performance” both before and during the months of the pandemic, with revenues increasing by 123% to €87.3 million in H1 2020 (H1 2019: €39.1 million). The business benefited significantly from increased market volatility and trading volumes during much of H1, particularly in March and April as the effects of the COVID-19 pandemic created large price movements in major instruments. Revenue specifically from TradeTech’s B2C activity – the Markets.com Retail FX and CFD brand – increased by 130% during the period (the company didn’t break out the exact amount of Markets.com’s Revenues), also reflecting the impact of the exceptional market conditions.
Despite the significant increase in revenues, TradeTech’s cost of operations increased by only 11% to €34.4 million (H1 2019: €30.9 million) driven by a marginal increase in B2C marketing spend, and a €1.5 million provision against potentially irrecoverable debts. As a result, TradeTech saw Adjusted EBITDA increase by 544% to €52.8 million for the period (H1 2019: €8.2 million).
As far as outlook, however, the company said that TradeTech’s first half performance is not expected to be repeated in H2 (which is almost half over already, with the end of Q3 looming in less than two weeks) with market volatility currently significantly lower than in H1. That reality might make it more difficult for Playtech to sell TradeTech, at least in the $200-250 million range which was first reported at FNG.
TradeTech was cobbled together as the Financials unit of Playtech about three years ago, combining both institutional (B2B) and retail (B2C) elements. In 2016 and 2017 Playtech acquired two B2B companies serving (primarily) the Retail Forex sector, CFH Group and Alpha Capital Markets. Playtech paid $120 million for CFH Group, a Denmark based company founded by ex Saxo Bank executives Lars Holst and Christian Frahm which provided liquidity services to FX brokers. The company then bought London based FX and CFDs market maker Alpha Capital Markets, formed just two years prior by former Gain Capital institutional FX personnel, for $150 million.
The two B2B companies CFH and Alpha were then combined (at least organizationally) with Playtech’s Retail FX brokerage arm Markets.com, based in Cyprus, which Playtech had acquired in 2015 directly from the company’s former controlling shareholder Teddy Sagi. That transfer was made at an implied valuation of more than $200 million for Markets.com.
The full Playtech 1H-2020 report can be seen here.