The business reported a 54% jump in reported revenues and an 11% increase in adjusted net profit. However, reported net profit declined 50%, and management has made the decision to reduce the firm’s dividend payout by a third, yanking back Playtech’s dividend yield from around 8% to 5.5%.

Maximising shareholder returns 

Management says the reason why it has decided to cut the dividend is “to maximise efficiency of shareholder returns.” Instead of paying cash out to investors, Playtech is returning €40m through a share buyback. Considering the stock’s current valuation (it’s trading at a forward P/E of 6.8) this seems like a sensible decision.

Having said that, I would sell Playtech after today’s results as I can see several red flags in the numbers. Specifically, I’m concerned that 2019 won’t be as strong as 2018 in terms of revenue growth. 

For example, in today’s results release, the company notes regulated B2B Gaming revenue for the first 49 days of 2019 was up 7% on the same period in 2018, although non-regulated gaming revenue for the same period declined 26%. 

The company goes on to guide that it expects to report adjusted EBITDA in the range of €390m-€415m for 2019, up from 2018’s figure of €343m, although this is assuming the Asian business “remains stable.” Further down the release, the firm notes “underlying adjusted EBITDA decreased by 21% compared to 2017, predominantly due to the fall in revenues from Asia.” If Asian revenues declined substantially in 2018, I think it is reasonable to suggest they will continue to decline in 2019, which might upset Playtech’s outlook.

So, after considering all of the above, I would avoid Playtech for the time being and invest my money in financial services group IG (LSE: IGG) instead.

Attractive opportunity 

Thanks to new regulations aimed at curbing inexperienced investor losses in the spread betting and contracts for difference markets (CFD), City analysts are forecasting a 20% decline in earnings per share for IG this year. 

The company isn’t alone in this. Virtually all spread betting and CFD providers are expected to suffer from the regulation. However, as the sector’s largest player, I think IG will come out on top. The group’s size and global diversification implies it should be able to shrug off the regulations and potentially capture market share from smaller peers.

The business has also recently been investing in other, more traditional investment products, such as share trading and it now offers ISAs for clients. These new initiatives should, in my opinion, help the group weather the storm and come out on top.

Based on the above, I think it’s worth buying shares in IG both for the group’s income as the stock yields 7.3%, and its growth potential. The shares are currently dealing at a highly attractive multiple of just 11.7 times forward earnings.

The post One FTSE 250 8% yielder I’d sell and one I’d buy today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Fat profit margins 

Playtech is an interesting enterprise. The company supplies technology for the gambling industry, which as it turns out, is a very lucrative business. 

Over the past five years, it has reported an average operating profit margin of 43% and return on capital employed — a measure of profit for every £1 invested in the business — of approximately 15%, nearly three times higher than the current market average. And because the development of software does not generally require a large amount of capital spending, its fat profit margins give it plenty of cash to return to investors. 

According to my calculations, over the past five years, the company has distributed £666m to investors via dividends, approximately 44% of its current market capitalisation.

Dividend champion 

I see no reason why this trend cannot continue for the foreseeable future. City analysts believe Playtech has the potential to produce earnings per share of 52p for 2018, and distribute 31.4p of this to investors, giving a potential dividend yield 6.8%. The payout is expected to grow modestly to next year to 35p thanks to a 14% uptick in earnings. If the company hits this target, investors are in line for a potential dividend yield of 7.4%.

Not only do the shares support a market-beating dividend yield, the stock is also trading at a relatively undemanding forward P/E of 8, compared to the IT services sector average of 19. Put simply, if you are looking for an undervalued business with a market-beating dividend yield to add to your ISA, I reckon Playtech could be the perfect pick.

On the other hand, Sportech (LSE: SPO), Playtech’s smaller peer, does not appear to offer the same level of value.

The last time I covered this market minnow, I speculated that recent developments in the US sports betting market could give the company “tremendous scope to grow over the next decade.“

Missed opportunity 

Unfortunately, it seems that management is struggling to capitalise on the opportunities available in the US. A trading update from the company today informed investors that, “certain expected sales contracts are unlikely to be secured in 2018,” so adjusted earnings before interest tax depreciation and amortisation (EBITDA) for the year are likely to come in as much as 10% below current market expectations.

Even though this lower target will still represent year-on-year adjusted EBITDA growth of as much as 20%, it is a disappointment for shareholders who had been expecting much more from the company.

Before today’s announcement, shares in Sportech were changing hands for more than 20 times forward earnings, reflecting investor optimism in the business. Now that the outlook has deteriorated, I’m not convinced that it is worth paying a premium for the stock. Playtech, with its already established business and attractive dividend schedule, is a much better buy in my opinion.

The post Have £2,000 to invest? I’d take a look at this 7% yielding FTSE 250 bargain for your ISA appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, I believe I’ve stumbled across two companies that both offer this unique mix. Below, I’m going to weigh up the pros and cons of investing in these hidden growth and income champions.

Out of favour

At the beginning of July, shares in gambling software developer Playtech (LSE: PTEC) crashed by nearly a third after it issued its second profit warning in two years. 

Management pointed to an “increasingly competitive backdrop” in Asia, which is expected to have a “significant impact on revenue throughout the rest of the year.“

Following the dour trading update, the City has been quick to downgrade its forecasts for the company’s growth in 2018. Before the warning, analysts had been forecasting EPS of €0.76 for the full year. Now a lower €0.67 is being targeted.

Looking at these numbers, I believe the market has overreacted to Playtech’s woes. After sliding 33% in the days after its profit warning, shares in the company now trade at a multiple of just 8.3 times forward earnings. 

The valuation is even more compelling after discounting cash. According to its most recent numbers, Playtech has €107m of net cash, and that’s excluding €222m the firm made from selling its stake in online gambling group GVC in June. 

Combined, I estimate these two cash balances are worth 83p per share. Using this figure, my calculations suggest shares in Playtech are currently trading at a cash-adjusted forward P/E of 7.2. On top of this highly attractive valuation, the shares also support a dividend yield of 6.8%. With more than €300m of cash to play with, it does not look as if this distribution will come under threat any time soon.

Beating expectations 

So, after considering all of the above, I believe Playtech could be a fantastic income and growth investment. 

Right now, it looks as if the market has written off the business. If Playtech can prove the market wrong, and sales start to recover, I believe the stock could easily outperform the broader market.

Playtech’s smaller peer Sportech (LSE: SPO) is another growth play I believe you should consider for your portfolio.

What excites me about Sportech is its future potential. The tech business has struggled to grow over the past few years, but the recent opening up of the US as what could be one of the world’s largest sports betting markets gives the company tremendous scope to grow over the next decade. 

Soon after the US Supreme Court decision that effectively allowed sports betting across the country in May, Sportech signed an agreement with Sportradar (a $2.4bn company) for sports betting data, trading and risk management services.

It has only been a few months since the Supreme Court ruling, and City analysts have not yet come out with updated growth forecasts for Sportech. And until we have solid numbers on the size and growth of the market, it’s unlikely reliable predictions will be published. 

Still, estimates suggest $150bn is already spent every year betting on sports across the country. Even if Sportech can grab just a tiny section of this market, the company and its shareholders should be well rewarded. This is why it’s worth keeping an eye on it in my opinion.

The post This FTSE 250 dividend stock could produce explosive gains for your portfolio appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GVC Holdings. has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today the company reported yet more growth for the year to the end of December. Revenue for the period expanded 14% on a reported basis to €807m and reported net profit increased by 29% €248m. Adjusted diluted earnings per share ticked higher by 14% giving management the confidence to hike the overall dividend by 10%. 

Unfortunately, it looks as if the market is not pleased with these figures as shares in the company have plunged by more than 10% in early deals, but I believe that this could be a great opportunity to buy. 

Cash cow 

As well as its impressive earnings growth, another of Playtech’s attractive qualities is the group’s cash generation. Free cash flow before dividends for the year was €160m and the firm ended the year with a cash balance, excluding client deposits, of €413m. Management is planning to use these funds for bolt-on acquisitions, which is a crucial part of the company’s growth strategy. 

Still, despite Playtech’s impressive record of growth, and robust balance sheet that can fund more deals, the shares look cheap. 

Based on current City forecasts, the shares are trading at a forward P/E of 11 and support a dividend yield of 4.4%, the payout is covered twice by earnings per share and, as mentioned above, is backed up with €413m of cash. This is why I believe that this company could be a starter investment for those looking for a home for their first £5,000. The shares are cheap, Playtech has a record of rapid expansion in a niche industry, and there’s a market-beating dividend yield on offer. What’s not to like? 

Undervalued growth

Playtech isn’t the only company that I believe is suitable for beginner investors. VP (LSE: VP) is another undervalued income and growth play that I believe won’t let you down. 

City analysts have pencilled in big things for this equipment rental business. Earnings per share are expected to expand by 67.3% to 79.4p for fiscal 2018, before rising 18% to 93.7p for fiscal 2019. This sort of explosive growth usually warrants a high valuation but that’s not the case with VP. Indeed, the shares currently trade at a modest forward P/E of only 10.7 falling to 9.1 for 2019. Analysts also expect the firm’s dividend payout to rise in line with earnings growth. On this basis, the shares are set to yield 3.3% by 2019, which is in line with the market average, but this is unlikely to be the case for long with the payout growing at a double-digit rate every year. 

Like Playtech, VP also has a record of explosive profit growth. If the company hits City forecasts for 2018, it will have increased net profit by more than 100% in the space of five years on revenue growth of 50%. Over the same period, the per share dividend payout will have nearly doubled. As long as VP can keep this record up, and I see no reason why it can’t, it could make a great starter investment for your portfolio. 

The post 2 cheap FTSE 250 dividend stocks I’d buy with £5,000 today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no stock mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.