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GVC off to a flying start in 2019; Peel Hunt reiterates 'buy' recommendation

In the first eight weeks of 2019, GVC's net gaming revenue rose 11% year-on-year, driven by a 22% increase in online revenues

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GVC's adjusted net debt at the end of 2018 was £1.896bn

Sports betting and gaming group GVC Holdings PLC (LON:GVC) has been quick out of the traps in 2019 with strong growth in net gaming revenue.

In the first eight weeks of 2019, net gaming revenue rose 11% year-on-year, driven by a 22% increase in online revenues.

READ: GVC jumps as 2018 update comes in ahead of expectations

“2018 was a transformational year for the group with the completion of the Ladbrokes Coral acquisition in March making the group the largest online-led sports-betting and gaming operator in the world,” observed Kenneth Alexander, GVC's chief executive officer.

The acquisition of Ladbrokes Coral also made the 2018 results statement tricky to interpret but fortunately, the company provided pro forma results.

On a reported basis, net gaming revenue in 2018 rose to £2,979.5mln from £815.9mln in 2018, while on a pro forma basis it rose 9% to £3,571.4mln from £3,288.1mln.

Reported underlying earnings (EBITDA) shot up to £640.8mln from £211.3mln the year before, while on a pro forma basis they rose 13% to £755.3mln from £666.5mln in 2018.

Thanks to £453.5mln of exceptional charges, the company reported a loss before tax of £18.9mln, versus a loss the previous year of £22.6mln, when the company took a £173.6mln hit from exceptional items. Most of the exceptional items related to amortisation of acquired intangibles; this time round amortisation was calculated at £322.5mln, whereas last year it was £106.5mln.

GVC said the value of acquired assets had been written down largely as a result of the decision by the UK government to bring the £2 fixed odds betting terminal stakes restriction forward to 1 April 2019.

Market share gains in all major territories 

The full-year dividend was pumped up to 32.0p from 29.8p the previous year.

“Excellent operational execution, effective marketing and a good World Cup helped both the legacy GVC and the acquired Ladbrokes Coral businesses perform ahead of expectations and materially ahead of the market, delivering market share gains in all our major territories,” declared CEO Alexander.

“The board is confident the group is well-placed to absorb the impact of the Triennial Review and associated tax increases in 2019 and deliver strong EBITDA growth in future years,” he added.

Now a good time to take a look

Channelling the famous Morecambe & Wise sketch featuring the recently deceased Andre Previn, broker Peel Hunt described GVC’s results as “all of the right notes in exactly the right order”.

“We believe that GVC’s know-how, technology and geographic diversity are sources of sustainable advantage. The more often GVC reports market-leading growth, the more we expect investors to be convinced about that sustainability,” the broker's analysts said in a note to clients.

“If we were a little further through the year, we would be upgrading forecasts,” they added, as the analysts noted that year-to-date trading represents an acceleration in the rate at which net gaming revenue is growing year-on-year.

Profits will fall this year, Peel Hunt noted, as a result of the introduction of £2mln maximum stakes on the betting terminals that are often referred to as “the crack cocaine of gambling”.

GVC’s net debt at the end of 2018 was roughly 2.5 times pro forma EBITDA and Peel Hunt expects this to rise to three times at the end of this year.

“Group profits are going to fall, albeit somewhat offset by synergies, and work on restructuring will continue but the valuation multiples are undemanding and Online, the key growth driver, has today again shown its trading momentum. For investors prepared to look through to FY20E, we believe now is a good time to look at GVC,” the Peel Hunt analysts added.

Peel Hunt reiterated a ‘buy’ recommendation and 900p target price on GVC shares, which in late morning trading were 3.8% higher at 675.50p.

 -- Updates share price --

Quick facts: GVC Holdings

Price: 863 GBX

AIM:GVC
Market: AIM
Market Cap: £5.03 billion
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