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GVC nudges up profit guidance despite softer quarter

Online net gaming revenue growth slowed to 12%, while bookies shops were reporting on the first full quarter of the new FOBT staking limits

GVC Holdings -

GVC Holdings PLC (LON:GVC) nudged its full-year profit target higher as the Ladbrokes owner reported an “encouraging start” in the US to help offset a slower quarter for gaming revenue growth.

Group net gaming revenue (NGR) fell 1% in the third quarter ending 30 September due to a tough comparison with last year when part of the period was boosted by the final stages of the football World Cup.

Online NGR grew 12%, slowing from the 17% in the first half of the year, while NGR declines worsened at the UK retail arm to 18% from 10% in the first half, as the impact of the cut to fixed-odds betting machine stakes in April and closure of 41 more betting shops.

Digital trading was good “across all major territories”, said chief executive Kenneth Alexander, hailing September’s launch of a sports betting app in New Jersey as part of the joint venture with MGM Resorts.

Full-year guidance for underlying profits (EBITDA pre-IFRS 16) was lifted to £670mln-£680mln, from £650mln-£670mln, as online sports margins improved, trends in UK bookmaker’s shops remained ahead of initial guidance and a newly announced €1.125bn debt refinancing trimmed costs.

With German regulation under scrutiny, GVC said there had been “no material developments” since the update in August, which the company suggested offers the “realistic possibility that the regulatory position will not be resolved until 2021”, though there was some news from Brazil, where an open licensing system with a 1% turnover tax is expected in late 2020 or early 2021.

City reaction

Shares in GVC rose 3% to 775p on Wednesday morning, continuing the rehabilitation from lows near 500p earlier in the year after a shareholder backlash against directors dumping about £20mln of shares and CEO Alexander being given large stock awards, which led to a relegation from the FTSE 100 index, ongoing investor pressure and a six-figure pay cut for Alexander.

The shares have been marching higher since half-year results in August when Alexander said the full year should be better than expected.

Russ Mould at AJ Bell said this latest update showed GVC remaining "true to its word", with online "doing really well", shops "aren’t doing as badly as feared" and closures of up to 900 stores over the next two years streamlining the business.

“One of the biggest risks for any gambling company’s profit margins is tighter regulation and GVC is no stranger to having to monitor policy changes. Higher taxes as more territories regulate activities would hit margins but operating legally in a regulated territory is something that most investors want," he said.

Broker Peel Hunt agreed that "the longer GVC continues to execute well, the better its chance of escaping the dog house".

It saw significance in the new refinancing, as well as cutting its forecasts for annual financing charges by £5mln.

Having speculated that GVC could hijack Flutter's merger plans and acquire Canada's Stars Group, Peel Hunt said: "The longer GVC trades well, and pays down debt, the more plausible such a blockbuster deal becomes.

"And even if Stars is not the target, we believe that GVC will execute another major acquisition. Flutter/Stars shows that consolidation isn’t slowing down. Continued successful execution will reassure shareholders in GVC and providers of M&A finance alike."

Berenberg said the statement "reinforces our view that it is the name to own in the sector", with "strong growth despite tougher comps".

Quick facts: GVC Holdings

Price: 1040.2688 GBX

Market: AIM
Market Cap: £58.61 m

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