ii view: GVC shares near record as profit estimates hiked

This high street and online gaming company just upgraded its full-year profit estimates. Here’s why.

Third-quarter trading update to 30 September

• Net Gaming Revenue (NGR) up 12%
• Online NGR up 26%
• All UK & European retail stores reopened

Guidance:

• Raising full-year profit expectations

Chief executive Shay Segev said:

"This has been another strong period for GVC. We have delivered our nineteenth consecutive quarter of double-digit online growth, along with market share gains in all our major territories.  The momentum that we are seeing across the Group is a clear testament to the resilience of our highly diversified business model, the attractiveness of our brands and products, the power of our proprietary technology platform, and the hard work and dedication of our teams around the world.

"While the risk of further restrictions as a result of Covid-19 mean that we remain cautious on the short-term outlook, in the longer term we are confident of being able to continue delivering sustainable growth for all our stakeholders."

ii round-up:

Online and high street bookie GVC Holdings (LSE:GVC), which previously bought Ladbrokes Coral, today raised its full-year profit expectations after delivering a 12% gain in third-quarter gaming revenues. 

Online net revenue growth of 26% exceeded first and second-quarter performances of +16% and +22% and made for the nineteenth consecutive quarter of double-digit online growth. Full-year adjusted profit is now expected to come in between £770 million and £790 million, up from an August estimate of £720 to £740 million.

GVC shares rose by more than 7% in UK trading and are now up over 200% since late March pandemic-induced lows. Shares of rival 888 Holdings (LSE:888) are up by a similar amount while confirmed takeover target William Hill (LSE:WMH) shares are up over 500% since late March. US casino operator Caesars Entertainment recently agreed to buy William Hill for $3.7 billion (£2.9 billion).

All GVC’s UK & European high street bookies have reopened, with volumes now within 10% of those seen prior to closures, aided by the return of major sport including England’s Premier League football.

Along with its results, GVC also announced the acquisition of Bet.pt, a leading online gambling operator in Portugal. The purchase further adds to its business overseas and follows the tightening of gaming regulation in the UK.

Its joint venture with MGM Resorts in the US, BetMGM, continued to make progress. It is now operating in eight states. A further three are expected to launch before year end. Management estimates that BetMGM's market share in its current markets to be around 17%. 

Revenue growth of 2% for it European retail outlets help offset a 5% decline in the UK, while overall NGR in Australia totalled over 60%. 

ii view:

The acquisition of Ladbrokes Coral by GVC has created a company with gaming licenses in more than 20 countries and across five continents. Group sporting brands include bwin, Coral, Crystalbet, Eurobet, Ladbrokes, Neds and Sportingbet. Its gaming brands include CasinoClub, Foxy Bingo, Gala, Gioco Digitale, partypoker and PartyCasino. A joint venture with MGM Resorts, BetMGM, now sees the US market in its sights. GVC management estimate that the US sports-betting and iGaming market will be worth approximately $20.3 billion (£15. 6 billion) by 2025. 

For investors, cautious management outlook comments regarding the Covid-19 cannot be ignored, while the cancelling of the 2019 final dividend payment due to the pandemic is also worth remembering. Tightening gaming regulations such as those now to be introduced in Germany, GVC's second-biggest online gaming market, also warrant consideration. 

But 19 consecutive quarters of double-digit online growth is hard to ignore, while expansion overseas, particularly in the US, offers long-term potential. The recent takeover spotlight on the sector and bid for William Hill also injects speculative excitement. For now, despite some required near-term caution given increasing pandemic lockdowns, fans of the company and its long-term prospects are likely to remain undeterred.   

Positives: 

• Diversification of business types and geographical location
• Impressive online growth

Negatives:

• Increased regulation
• Industry target for increased government taxes globally

The average rating of stock market analysts:

Strong buy