ii view: GVC raises profit guidance

High street bookmaker and online betting company GVC Holdings sees profits fall, but it could be worse.

Half-year results  

• Revenue up 5% to £1.8 billion
• Adjusted profit (EBITDA) down 7% to £323.4 million 
• Interim dividend up 10% to 17.6p per share
• Full-year profit guidance increased by £10 million

Chief executive Kenneth Alexander said:

"The group's performance in the first half was extremely pleasing. Our online operating model is proving highly effective, building on the sustainable competitive advantages of our wholly owned technology platform, leading product, cutting-edge marketing, leading brands and local execution, which are all delivered with an unrivalled understanding of the markets in which we operate."

ii round-up:

Sports betting and gaming company GVC Holdings (LSE:GVC) was founded in 2004. In 2018, it acquired Ladbrokes Coral. 

Incorporated in the Isle of Man, it operates both online and in the retail sector and has licences in more than 20 countries. It employs over 25,000 people, with its betting outlets running to over 3,400.  

Group brands include bwin, Coral, Crystalbet, Eurobet, Ladbrokes, CasinoClub, Foxy Bingo, Gala, Gioco Digitale, partypoker and PartyCasino.

In mid-2018, it entered into a joint-venture with MGM Resorts to capitalise on the sports-betting and gaming opportunity in the US.

Half-year results just reported are in line with analyst forecasts. 

Government changes to reduce the maximum stake on fixed-odds gaming machines to £2 led profits lower at its UK betting shops. But higher than anticipated sports betting meant the fall was not as bad as initially expected, and the likely closure of 900 shops over the next two years is less than anticipated. This has allowed management to upgrade its full-year profit estimate by £10 million to a £650-£670 million range. 

The share price rose over 4% in early UK stock market trading. 

ii view:

The acquisition of Ladbrokes Coral by GVC has created a company operating 19 established brands around the world. Cost savings in the region of £130 million by 2022 are being targeted, with the integration said to be "progressing very well".

An MGM Resorts joint-venture now sees the US market in management sights, while its online performance was described by management as "materially ahead of the market".

For investors, the highly cash generative nature of the business gives it flexibility to invest in the business, reduce debt and return cash to shareholders. A prospective dividend yield of over 6% and, while the forward price/earnings ratio (PE) does not scream value, it is currently below the 10-year average. Less favourably, and with governments globally under pressure to raise tax revenues and reduce debt, the gaming industry is likely to remain a relatively easy target.

Positives: 

• Diversification of business types and geographical location
• On track to save £130 million by 2022

Negatives:

• Increased regulation globally
• Net debt leverage ratio forecast to increase to 2.9x by  end of the year

The average rating of stock market analysts:

Strong buy