ii view: GVC rallied after halving its Covid-19 profit hit

Government and management actions are assisting, but the dividend is still scrapped. 

First-quarter and Covid-19 update

• Net gaming revenue up 1% - online up 19%
• Withdrawing recently announced dividend payment
• Now expects earnings disruption of £50 million per month, down from £100 million

Chief executive Kenneth Alexander said:

"As our Q1 trading numbers once again demonstrate, GVC is a business that, in normal times, delivers an outstanding performance.  However, while our global and product diversification is standing us in good stead during the current uncertainty, the Covid-19 pandemic is posing an unprecedented challenge to our business and our industry.  

“We are responding decisively, and have put in place a range of measures to keep our people safe, strengthen our financial position, limit cash outflow, preserve jobs and maintain a compelling customer offer.  I am confident that we will emerge from this period in a position of strength, and we will be well placed to take advantage of a range of attractive growth opportunities which we believe will be available to us.”

ii round-up:

Online and high street bookie GVC Holdings (LSE:GVC), which previously bought Ladbrokes Coral, today halved its expected hit to profits from Covid-19.

Following a number of management actions, adjusted profit or earnings are now expected to be reduced by £50 million per month as opposed to a previous estimate of £100 million. 

Its shares rose by 16% in afternoon UK trading, partially countering a 30% plus fall since the start of the year. Rival William Hill's (LSE:WMH) shares are down over 60% year-to-date. Flutter Entertainment (LSE:FLTR) is down around 22%. 

Like William Hill, GVC is also cancelling its final dividend payment due to be paid on 23 April. 

While the year had started strongly, the corona crisis had, since mid-March, seen major sporting events cancelled, hitting sports related betting, while high street stores in the UK have been closed.

Online non-sports related gaming had remained solid, aided by customers confined to home under lockdown conditions. Online net gaming revenue grew by 19% over the first quarter. 

UK government measures to assist with employment costs and business rate relief will reduce costs by around £20 million per month. Reduce marketing will also lower group costs. 

ii view:

The acquisition of Ladbrokes Coral by GVC has created a company operating 24 brands globally, and an MGM Resorts joint venture now sees the US market in its sights. 

For investors, the highly cash generative nature of the business gives it flexibility between investing in the business, reducing debt and returning cash to shareholders. However, Covid-19 has now seen sporting events cancelled and its high street outlets closed, with the decision to scrap its final dividend taken in order to conserve cash. 

Cash at hand of over £350 million and a revolving credit facility of over £550 million offer reassurance, while bond financing totalling £500 million is not due to mature until dates between 2022 and 2023. But UK government regulation has been increasing, with the loss of the dividend a major attraction removed. A long-term view regarding the company has now become increasingly important.   

Positives: 

• Diversification of business types and geographical location
• Online casino gaming still active

Negatives:

• Increased regulation
• Adjusted net debt of £2.17 billion compares to a market value of £4.4 billion

The average rating of stock market analysts:

Strong buy