ii view: Ladbrokes owner GVC expects big annual profits

Online gaming and its US joint-venture are throwing off lots of cash, but regulation is a threat.

Full-year trading update to 31 December 2019

• Adjusted profit (EBITDA) expected at the upper end of guidance - £670 million to £680 million
• Online Net Gaming Revenue (NGR) up 13%
• UK retail same store NGR down 12%
• European retail NGR up 4%
• Total group NGR up 2%

Chief executive Kenneth Alexander said:

"The group's operational and financial performance in 2019 has been excellent with the strong momentum reported at Q3 continuing throughout Q4. As the group continues to deliver the opportunities provided by both the Ladbrokes Coral integration and our sports betting joint-venture in the US, the Board is confident that the group is well placed for a successful 2020."

ii round-up:

Online and high street bookie GVC Holdings (LSE:GVC), which previously bought Ladbrokes Coral, reported few if any surprises in this full-year update ahead of final results. 

Hit by government changes to fixed-odds betting terminals (FOBT), same store net gaming revenue (NGR) fell by 12%, better than management’s initial estimates. 

More than compensating, online NGR rose by 13%, while European retail operations reported a gain of 4%. GVC, whose brands include bwin, CasinoClub, Foxy Bingo and PartyCasino, has gaming licences in more than 20 countries. 

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

Aided by alternative in-store betting, adjusted profit (EBITDA) is now expected to be at the upper end of previously raised guidance of between £670 million to £680 million. 

The shares drifted 1% lower in afternoon UK trading. 

ii view:

The acquisition of Ladbrokes Coral by GVC has created a company operating over 19 established brands across a global footprint. Cost savings in the region of £130 million by 2022 are being targeted. 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 3.5% (not guaranteed) and a forward price/earnings ratio below the three-year average both offer appeal. Less favourably, UK government regulation has been increasing – the use of credit cards 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
• On-track to deliver £130 million costs synergies by 2022

Negatives:

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

The average rating of stock market analysts:

Strong buy