Ladrokes owner GVC's shares still 'attractive'

An eventful, acquisition-packed few years has trebled the share price, but there's still value, reports Graeme Evans who reveals the potential upside here.

Even though a lung-busting run for shares has tailed off in recent weeks, the mood surrounding new Ladbrokes Coral owner GVC Holdings remains positive.

The company, whose other sports betting brands include bwin and Sportingbet, has today made the most of a particularly favourable World Cup for bookmakers by reporting a 17% rise in half-year operating profits.

It also thinks it can find £30 million of capex synergies from the Ladbrokes acquisition to build on the £130 million of cost savings already promised after the March tie-up. GVC is also confident that it can continue to deliver top line growth from the UK betting shop business, despite tough conditions.

The good news doesn't stop there, though, as GVC has recently signed a joint venture with MGM Resorts to provide sports betting and online gaming services in the United States. This follows a ruling in May by the US Supreme Court to legalise sports betting.

CEO Kenny Alexander says the combination of MGM's leading brands and GVC's technology puts the group "in the best possible position" to benefit from what could become the world’s largest regulated sports-betting market.

Alexander has also pledged to continue the acquisition-driven strategy that has enabled the gaming firm to outflank rivals including William Hill. Previous deals involving GVC have included Sportingbet in 2012 and bwin.partygaming in 2016.

He said: "Gaming regulation continues to evolve globally creating both opportunities and challenges, with barriers to entry rising all the time.

"Against this backdrop, GVC is well positioned to continue to create further shareholder value."

Source: interactive investor (*) Past performance is not a guide to future performance

That has been seen in a share price that has pretty much trebled in the past three years. The MGM deal and the bonus of a strong World Cup helped the stock peak at 1,177p at the start of August, but it's slipped back then.

Today's interim dividend of 16p a share is 10% higher than a year earlier.

Analysts have remained largely enthusiastic, despite the strong run for shares. Berenberg upgraded its price target today by 30p to 1,400p, adding that GVC’s investment in growth was continuing to pay off.

They added:

"The stock trades at undemanding multiples, both in absolute
terms and relative to peers. It remains our top pick in gaming."

Berenberg's estimates for 2018 are based on a price earnings multiple of 13.9x, with a projected dividend yield of 3%.

Investec Securities has a price target of 1,275p, while Canaccord Genuity is at 1,375p. They wrote:

"After a strong relative run, we expect to see some short-term profit taking, given the absence of upgrades, but we believe it still offers attractive medium-term value."

One of GVC's attractions is its diversified portfolio, with net gaming revenues from online up 18% in today's half-year results amid market share gains across key territories. Its gaming brands include CasinoClub, Foxy Bingo, Gala, partypoker and PartyCasino. 

GVC's acquisition of Ladbrokes Coral neatly side-stepped the uncertainty caused by the Government's review into Fixed Odds Betting Terminals (FOBT).

While the headline deal valued Ladbrokes Coral at more than £3 billion, a contingent value right was included to pay shareholders a sliding scale depending on the outcome of the review.

Ministers subsequently proposed a cut in the FOBT maximum stake to £2 from £100, fuelling fears that thousands of betting shops will have to close.

GVC recently announced a new seven-year deal with Scientific Games for the provision of next generation FOBTs. An initial trial of the first of these new units in 100 shops has demonstrated encouraging returns.

*The pink line represents previous technical resistance, now support. The yellow line represents the uptrend since 2015.