Member Info for JohnLewis79

Yet another bookmaker reports declining profits for the half year.Paddy profits tumbled 20% to £49m as punters gained the upper hand for a change.Makes Sportechs results all the more impressive.In stark contrast Playtech announced record h/yr figs up 21%.You may remember they had a 10% stake in Spo since sold.

There is a very interesting article on the intricacies of Spo case v HMRC.If shareholders are interested go to sdoglyons.wordpress.com sportech trawl down to Edward Wildman.

Gala Coral group are being readied for floatation though they are looking for buyers for the bingo business (hope Sportech are not looking) estimated to be worth £250m! (yea thats what I thought).So what do you get for £250m?, well a lot of run down expensive properties to maintain, declining admissions and declining profits.Last year the bingo business ebita was £25.2m (pre exceps) grossed down to £14.8m and they want £250m for that lot which incidentally does not include the online operation (now there's a surprise) I would be amazed if they got £250m for the bingo estate if by some miracle they did.......what price Sportech?

Of course paying out the div from net profits is ok but net debt remains on the books at £66.7m leaving little for a div.The exceptional gains being £35.1m and £52m in respect of the vat claim.I thought originally they had paid off the debt but apparantly not as this amount will have to be repaid should HMRC appeal be upheld.Im not sure why they have recognised the vat payment as ot may have to be repaid, must be some accounting necessity.

As you know Mr Penrose said he wanted Spo to list as a dividend paying company.So should Spo pay a dvi and if so how much can shareholders expect baring in mind that these are paid out of net profits (usually).Companies that pay dividends are usually rated higher than non paying ones as investors seek cos that have predictable and stable income streams able to pay a return on monies invested with a higher gross than bank/savings accounts.Of course they are only returning you your own money which you will pay tax on again!!!!!!!!.So if we take Spo recent results and for example assume they are the f/yr numbers the div would be paid out of net profits of £69m.Now they could pay a one-off special div or pay a final div at year end.If they choose the usual route of final and interim payments they may decide on a final of (7p) and an interim of (3p) this would cost approx £20m or near 30% of net profits (too high I reckon) but put your own fig in.Me? I'd rather the co kept the cash for investing in the future where returns surely will be greater in sp appreciation than giving me back my own money!.

On the 8/3/2013 the first tier tribunal ruled infavour of Spo re stb competition the claim being worth £40m + simple Iinterest taking the payout to over £80m.The stock duly jumped 17p to close at 108p on.3.5m shares traded.HMRC were given leave to appeal and the shares never saw 100p again closing out the year at 81p.Here we are 18 months later the stock trading near 30% lower and uncertainties continue to dog the stock despite recent h/yr results bang in line with expectations and I might say much better than Lads & WH. In June HMRC paid Spo £90m pending the vat decision mainly to save further accrued interest (why they didnt do this years ago is any body's guess).The sum has been recognised in the 2014 h/yr accounts.The important bits: Total assets £256m (126p) total liabilities £48.7m leaving total equity of £208m (102p)net.The shares now trade at a 39% discount to ebita.Should the upper tier tribunal rule in Spo favour I dont expect the sp to rise much as for better or worse this has already been priced in, maybe a10p rise at best?, if so still at a discount to ebita and nav.The shares provide a good margin of safety at this level and must be a buy.

I have just looked over the financial statements for the H/yr and noted on page 21/22 under liquidity risk :Borrowings were fully repaid in June 2014 and as such the group is not exposed to liquidity risk.EXCELLENT!.

Sportech was trading around 80/81p pre interims which lets face it compared to Sads and Will Hill were positively scintillating at level par for the H/yr.We know about Lads profit decline but WH was almost as bad, profits after tax 27% down on 2013.The stock duly fell but have scince powered back to pre results (350p).Spo sp decline scince the results has been more measured, bouyed by the hoped for cash windfall, without this the sp would have tested the low 70's.At this price Spo is looking interesting again.

I see in the FT (blimey must have been a slow news day ) that Penrose says the co means to enter the dividend list at the first opportunity, assuming they"pass go" so to speak. Bad move, get rid of the debt!.

Ladbrokes plc recently reported a profits slump of (50%) at the interim stage to £27.7m.Go back a year and the sp was 240p so a fall of around 40% to current 136p.Did Mr Glyn fall on his sword?.....oh no he just copped a 760k share award, ok with limitations/performance written in to Dec'2016.Nice one Glyn.Heh, thats not all his pay check doubled to near £5m after a £4m long term bonus.Jeeeeeez has the man no shame!.

Investec (house broker) reiterate buy recommend on Spo with a target price of 110p (minus the vat I guess) as thats worth £90m nett or 44p the rest of the co is only worth 66p or a pe of 6×earnings either way dyor!.

Despite the t/o falling (when are they ever going to increase the top line?) gross profit margins are as healthy as ever.As follows:Pools (42%): Racing & Digital (22%):Venues (12%): Group overall same as last year (26%).There was some currency impact which most probably will effect f/yr results.Outside of the continuing inability to grow the top line (for God's sake Mr Penrose stop trumpeting the co processes 13 billion squillion trillion zillion in bets, do we make any money off this?.......yea, peanuts!) Id say the case remains for a buy recommendation with the vat award most certainly, without?, just because of the super margins....yes.

As expected zzzzzzzzzzzzzzzzzzzzzzzzz!

Back in the day Benjamin Graham devised a method of buying stocks, he called it 'the net current asset approach'.Basically he looked for stocks that were selling for less than 66% of net cuurent assets, ie current assets less current liabilities + debt.So take Sportech as an example.Current assets =108p per share.Net Current liabilities =38p per share leaves us with net c/assets of 70p per share.If Sportech sold below 46p (66% of 70p) then he would purchase the shares.Seems under the Graham method he would pass on Sportech. His method over time produced results far in excess of the market.Finding stocks that the market has hammered below what the cos assets would fetch in a fire sale is extreemly hard and even if you were lucky enough by the time you'd spotted it no doubt it had been re-rated.As to Sportech I believe the shares are undervalued and win the vat case its a whole new ball game.

If it wasnt for the downright cussedness and determination of Michael Fleming challenging HMRC over the repayment of vat charged on his three Aston Martin sports cars many a company would have been left high and dry.In Flemings case the amount was £128k and was triggered by a decision four years earlier to change the time over which cos could backdate claims for refunds.Until then one could file up to six years old.Moving the goalposts HMRC halved the period to three years, leaving many firms out of pocket!.To make matters worse EU tax laws were misunderstood in the UK meaning for years many businesses had wrongly paid vat.Mr Fleming was undeterred pressing his case in the vat and High Courts, facing huge costs he took his case to the House of Lords where in 2008 he finally won.The courts ruling was a disaster for HMRC as companies were given a one-off opportunity to recover vat.It opened the floodgates to hundreds of claims, HMRC was swamped.It is estimated that 15k firms received payments totalling over £8bn.Far from the end of the matter HMRC now faces claims for compound interest to be paid.Littlewoods the mail order business argued that HMRC should pay interest on the rebates (interest on the interest).In another blow to HMRC the EU Court of Justice ruled in favour of Littlewoods.The final bill may well exceed £20bn!.Sportech said it wrongly paid vat on"spot the ball"between 1979-1996 because HMRC guidelines stated vat was paid on games of skill but not those of chance.HMRC claims it is a game of superlative skill eliminating the chance factor so liable to vat payments. Sportech begs to differ insisting its a game of chance not least because the location of the ball bears no relation to reality:furthermore it is decided upon an independent panel.This long running saga now nears a denouement the latest appeal now 5 months old is due to be finalised shortly.

Sorry for the balls up on figs was using ebita % instead of earnings so basically in 2014 I estimate f/yr profits at £30m for eps of 15p and a pe of 10×earnings still very cheap given the potential.The pe ratios at 200p would be 13× and at 250p would be 16.6×.I cant remember the sector average but id guess around 15× earnings.

So lets say Spo win the case and keep the £93m which is the equivalent of 46p per share. Spo current sp is 85p so basically 39p provides an ebita of £26m (85-46) for a pe of less than 1× earnings!.Too good to be true you say, so I'll estimate 2014 figures for a full year ebita of £30m (+15%) and the sp 100p that gives us a pe of 3× earnings.Even if the sp rose to 150p the pe ratio would only be 5× and at 200p would be less than 7× earnings. Cheap as chips and no liabilities outside of current day to day payables.So fingers crossed the tribunal see sense and reject HMRC claim.

Should have been more precise!, the current sp trades at a 34% disc to the asset value ie more like a property company . Now would be a good time to buy the shares as should the claim be ruled in favour of Sportech the sp wont be 85p!, may even test historic highs.Of course you have to think its a slam dunk in Sportechs favour, me more like 60/40 still attractive enough to make a purchase.

Jumping the gun here cos it can go t's up nevertheless Sportech must have decided what action to take should the vat claim be resolved in the cos favour.I suspect it may include a special dividend and debt reduction. Personally I think a dividend is a waste of the cos money and tantamount to the co saying they dont know what to do with the cash, heh give it to me ill soon spend it.No, debt reduction and in full would be my choice, outside of an attractive acquisition. If we take the total liabilities (£93.4m) as of 2013 the vat award would clear that in one fell swoop leaving a hugely more valuable co with net assets of over £233m and no liabilities equivalent to 114p per share which trades at a 34% discount to nav blimey even Warren Buffet would look twice.Put it another way its like buying £1.14p for £0.85p. Will this happen?..........not a chance!.

Back page of business section"databank"headed"Briefing Sportech"sections inc the business/the CEO/the results/the future. Broker Peel Hunt expect a slight fall to £5m pre tax.No surprise there! Am I cynical enough to think that the vat tribunal result will be announced at the interim stage?, ,most definitely assuming they can stop sucking their thumbs and come to a decision, a big ask I grant you.Oh to be a lawyer! .