Interactive Investor

ii view: Internet takes the strain at Ladbrokes owner GVC

With geographical diversity and a nice dividend yield, should investors take a closer look?

6th March 2020 11:22

Keith Bowman from interactive investor

With geographical diversity and a nice dividend yield, should investors take a closer look?

Full-year results to 31 December 2019

  • Adjusted Net Gaming Revenue (NGR) up 2% to £3.65 billion
  • Adjusted profit (EBITDA) down 10% to £678 million
  • Reported group loss after tax of £140.7 million
  • Final dividend of 17.6p per share
  • Total full-year dividend up 10% to 35.2p
  • Adjusted net debt of £2.17 billion

Chief executive Kenneth Alexander said:

"Our first full year since the Ladbrokes Coral acquisition has been a good one, and the performance has continued to be underpinned by our unique and highly effective operating model. We have delivered very strong growth in our Online business, including market share gains in all major territories, and good momentum in our European Retail business. 

"This revenue growth has more than offset the impact on the UK Retail business of the £2 restriction on B2 machines stakes. We are delighted with the progress that is being made on the Ladbrokes Coral integration, and in the US the launch of BetMGM on the GVC platform in New Jersey was an important milestone for our business there and enables us to remain on track to deliver on our ambitions in this exciting market."

ii round-up:

Online and high street bookie GVC Holdings (LSE:GVC), which previously bought Ladbrokes Coral, posted results that matched city forecasts. 

The company, whose brands include bwin, CasinoClub, Foxy Bingo and PartyCasino, enjoyed a 13% gain in Net Gaming Revenue (NGR). Sporting revenues rose by 16%, while gaming NGR expanded by 13%, with market share gains made across key regions. GVC has gaming licences in more than 20 countries.

Less favourably, and as flagged in its mid-January trading update, same store NGR for its UK high street outlets fell by 12%, impacted by government changes to fixed-odds betting terminals (FOBT).

Stripping out the Ladbrokes Coral acquisition, adjusted profits fell by 10% to £678 million. When including exception charges, a loss of £140 million was made. The total dividend for 2019 was hiked by 10%.

The shares, having risen by 31% over 2019, outpacing rival William Hill (LSE:WMH) but chasing a 40% plus gain for rival Flutter Entertainment (LSE:FLTR), are down nearly 15% year-to-date. 

Accompanying management comments pointed to strong current trading. 

ii view:

The acquisition of Ladbrokes Coral by GVC has created a company operating 24 brands globally. 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. A prospective dividend yield of over 4% (not guaranteed) and a forward price/earnings ratio below both the three and 10-year averages both offer appeal. 

On the downside, UK government regulation has been increasing – the use of credit cards for gambling online is being banned – while gaming remains a relatively easy target for cash strapped governments to raise taxes on. 

Positives: 

  • Diversification of business types and geographical location
  • Attractive dividend payment

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

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