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GVC lifts 2020 guidance on Ladbrokes Coral merger synergies and lower hit from betting price cap

“We remain bullish on GVC for its international opportunities and expect an excellent presentation from management today," Peel Hunt said.

GVC
GVC completed the £4bn acquisition of Ladbrokes Coral in March 2018

GVC Holdings PLC (LON:GVC) shares advanced after saying it expects a £30mln upgrade to 2020 earnings, boosted by its merger with Ladbrokes Coral and a lower-than-expected impact from tighter regulations on gaming machines.

In a statement ahead of its capital markets day, the gambling firm said it estimates an additional £15mln of cost savings in 2020 from the integration of Ladbroke’s online brands with its own technology. GVC completed the £4bn acquisition of Ladbrokes Coral in March 2018.

READ: Ladbrokes and Coral owner GVC off to “excellent start”, but unsure of recent rule change impact

The company said the impact of new gaming machines regulations on core earnings would be £130mln in 2020, lower than its earlier estimate of £145mln, resulting in a further £15mln uplift to its guidance for that year.

Following a triennial review, the government cut the maximum stake on fixed-odds betting terminals (FOBTs) from £100 to £2, which took effect in April.

GVC said the curbs would result in the closure of up to 1,000 shops and carve £135mln off core earnings in 2019.

The crackdown on FOBTs has prompted GVC and other UK gambling companies to look at expansion in the US, where regulation on sports betting has eased.

GVC forged a joint venture with casino group MGM Resorts International last July to increase its presence in the US market.

GVC confirms 'excellent' start to the year

“We have had an excellent start to the year with strong momentum across all divisions continuing into the second quarter,” GVC's chief executive, Kenneth Alexander said.

He added: “We are making great progress on the Ladbrokes Coral integration and we have a clear roadmap for delivery in the US, where it remains early days, but there is no doubt that this is a great long-term opportunity for GVC."

Shares rose 1.5% to 602.4p in mid-morning trading.

In early March, shares fell as much as 18% after the chief executive and chairman, Lee Feldman, sold a combined three million in shares worth £20mln.

What analysts think of the earnings upgrade

In a note today, analysts at Numis Securities said: “As well as the shares suffering from the CEO and chairman sales in March, the wider sector has come under pressure from sustained regulatory concerns. This upgrade, reinforced by this afternoon's presentations, should be taken positively by the market.”

Numis maintained a ‘buy’ rating and target price of 990p.

Peel Hunt also kept a ‘buy’ recommendation and left its target price at 900p.

The stockbroker's analysts said they thinks it seems “oddly premature”, a few weeks in, to conclude that next year's machine performance will be better.

“It also seems to demonstrate something of a tin ear in relation to the concerns of politicians to say that customers are spending more than expected,” they added.

“We remain bullish on GVC for its international opportunities and expect an excellent presentation from management today. However, it may take more time and out performance for GVC to shake free of the doldrums afflicting the sub-sector.”

Quick facts: GVC Holdings

Price: 858.8 GBX

AIM:GVC
Market: AIM
Market Cap: £5 billion
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