Questor: Gamesys has gained 90pc since our tip but it still feels like a winner. Hold

Results that (just) exceeded already raised expectations, a further hefty dividend payment and the prospect of further cash returns all mean that readers can stick with Gamesys, the online casino and bingo firm.

Granted, we have a 90pc paper profit to protect since our tip in October 2017 and have just waved goodbye to rival firm 888 after a similarly pleasing gain. But Gamesys looks cheaper on an earnings basis and thus offers us a bit more protection should this year’s review of the 2005 Gambling Act throw up something unexpected.

The results for 2020 released last week show just how far the company has come since its switch from the Toronto Stock Exchange in 2017, its change of name from JackpotJoy to JPJ and 2019’s acquisition of the platform software provider that gave it its current name. That deal makes reading the figures a little harder than it would be usually, but sales on an underlying basis rose by 29pc, underlying net income rose by 86pc and free cash flow was excellent.

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One of the company’s weaknesses when it first came to the London market was its balance sheet, but rapid debt reduction has strengthened it and surely laid any concerns to rest. And, as this column often likes to say, less debt means less risk and less risk means that a stock can merit a higher earnings multiple and hence a higher valuation.

In this context a forecast price-to-earnings ratio of barely ten times still looks like good value, especially as further rises in the dividend and even share buybacks are possible in future.

Strong growth in Asia and Japan bodes well, while the US market could still prove to be fertile territory. For all that, there remains a chance that underlying growth rates slow in 2021 as vaccination programmes give people the freedom and confidence to get out and about more as the year wears on.

This is a risk that investors must consider, alongside any regulatory pressure in Britain and Europe, where tax grabs also cannot be ruled out as cash-strapped governments seek to fund their pandemic support programmes.

Investors of a nervous disposition may therefore opt to cash out their initial investment and leave just their paper gains in play. However, the valuation, formidable free cash flow and solid dividend yield should all help to underpin the shares. Gamesys still feels like a winner. 

Questor says: hold

Ticker: GYS

Share price at close: £15.84

Update: IP Group

In some ways, the (relatively) easy money has been made on IP Group, as shares in the intellectual property commercialisation specialist have more than doubled since our initial analysis in November 2019, and in doing so they have narrowed the discount to net asset value at which they trade from 48pc to 4pc.

However, there is still long-term potential here for patient, risk-tolerant investors, as suggested by management’s decision to pay a maiden 1p-a-share final dividend alongside last week’s full-year results.

Within IP Group’s portfolio, stakes in 43 firms represent 84pc of the £1.2bn value. One of those, Oxford Nanopore, the DNA sequencing specialist, makes up nearly a quarter of NAV. Talk of a flotation is therefore particularly interesting, especially in light of that company’s LamPORE Covid-19 diagnostic test, which is already in use within the NHS.

But there is more to IP Group than just its 15pc stake in Oxford Nanopore, one of three “unicorns” (start-ups with $1bn-plus valuations) that the firm has backed alongside Hinge Health and Ceres Power. Exiting Ceres Power with a seven-fold profit shows how powerful IP Group’s operating model can be and there may well be more to come from its holdings across the life sciences, technology and renewables sectors.

The fact that the discount to NAV is very small does increase the risks should anything unexpected go wrong but the possibility of share buybacks, should the shares start to trade at a wide discount to NAV, could provide some protection against share price falls.

Patience should pay further dividends at IP Group.

Questor says: hold

Ticker: IPO

Share price at close: 120p

Russ Mould is investment director at AJ Bell, the stockbroker

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.