GVC continued its strong run of form this week, with an impressive second quarter. Graeme Evans tells us why the shares have further to go.
Buoyed by a near-perfect World Cup for bookmakers, GVC Holdings has injected the kind of luck that Ladbrokes Coral never seemed to enjoy prior to its takeover by the online gaming firm earlier this year.
Newly-enlarged GVC continued its strong run of form this week, with an impressive second quarter resulting in net gaming revenues up 11% in the three-month period. Shares dipped 2%, but they were at a record high on Thursday after Croatia's semi-final win over England saved bookies an estimated £200 million.
The tournament in Russia was hugely positive for the industry given England's unexpected progress alongside early exits for some favoured teams.
GVC reported a better-than-expected gross win margin from the World Cup, as well as encouraging stats on betting volumes and the value of new customer deposits. In the UK business, which includes Ladbrokes betting shops, like-for-like revenues moved into positive territory in the quarter after 2% growth.
The weather was also less disruptive than the first quarter, leading to a 3% decline for UK retail across the first half of the financial year.
This latest update update reassured the market and prompted a number of analysts to reiterate their 'buy' recommendations on GVC.
Berenberg said the update reflected "excellent trends" despite risks posed by the complicated integration process of Ladbrokes Coral.
They said: "The statement again testifies to management’s focus on operations and new product delivery. Even after the strong share price performance, GVC ratios look attractive."
Noting the potential for further upside from the existing business and US expansion, Berenberg has a price target of 1,370p and describes the company as its top pick in gaming.
Barclays cautioned against getting too carried away by revenues generated during a clearly beneficial World Cup.
However, analyst Patrick Coffey sees an upside to consensus estimates driven by cost synergies, stronger than expected revenues growth and a turnaround of Ladbrokes Coral online.
With GVC trading on a 2019 price earnings multiple of 12.8x, Coffey has a price target of 1,220p.
Investec Securities kept its target price unchanged at 1,204p but said the company merited a premium to its closest peers for reasons including diversification and its positioning in the US market.
Analyst Alistair Ross said: "We see upside risk to our forecasts and target price, but leave both unchanged for this update."
GVC completed its acquisition of Ladbrokes Coral in March, having neatly side-stepped the uncertainty caused by the Government's review into Fixed Odds Betting Terminals (FOTB).
While the headline deal valued Ladbrokes Coral at more than £3 billion, a contingent value right was included to pay shareholders a sliding scale depending on the outcome of the review. Ministers subsequently proposed a cut in the FOTB maximum stake to £2 from £100, fuelling fears that thousands of betting shops will have to close.
Previous deals involving GVC, whose brands include Foxy Bingo, have featured Sportingbet in 2012 and bwin.partygaming in 2016.
GVC is led by chief executive Kenny Alexander, who joined the company in March 2007. He said today: "The strong momentum across the online business has continued and means we are well placed to deliver against our full year expectations."
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