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GVC eyes top-end profits though online growth slows

The bookmaker expressed confidence that it was “well placed for a successful 2020” as it further integrates the Ladbrokes Coral acquisition and grows its US sports betting joint venture

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GVC Holdings PLC (LSE:GVC) said declines at its UK bookmakers shops were not as bad as it expected last year but online betting growth slowed slightly in the fourth quarter.

These factors, combined with a continued improvement in betting margins, led the Ladbrokes and Sportingbet owner to say underlying profits will be towards the top end of its guidance for an underlying profit of £670-680mln. Guidance was lifted in November from £650mln-£670mln.

READ: Will the gambling credit card ban help gamblers and hit bookies?

Like-for-like net gaming revenue (NGR) at UK betting shops dropped 11% in the fourth quarter, meaning it was down 12% over calendar 2019.

The fall in retail was due to the cut in the maximum stake allowed on fixed-odds betting terminals (FOBT), with revenue from the ‘crack cocaine of gambling’ down 31% in the quarter, but partly offset by a 17% rise in over the counter betting as punters shifted their cash onto sports betting instead.

Bookies face further UK regulatory tightening this year, with the Gambling Commission this week issuing a ban on firms from accepting credit cards for “all forms of land-based and online gambling” from 14 April.

GVC chief executive Kenneth Alexander said that the board was confident that GVC was “well placed for a successful 2020” from further integration of the Ladbrokes Coral acquisition and Roar, the latter also announcing a new deal with Yahoo Sports.

“The group's operational and financial performance in 2019 has been excellent with the strong momentum reported at Q3 continuing throughout Q4,” he said.

Online growth slows

Online NGR grew 9% in the fourth quarter, which meant growth for the year slowed to 13% from the 15% reported in the first three quarters.

Group net gaming revenue rose 2% for the year, with European retail NGR growing 4% and the Roar Digital sports betting joint venture in the US seeing “strong” online growth.

GVC shares, which fell to a two and a half year low after the FOBT crackdown last year before rallying strongly, were down 1% to 925p at noon on Friday.

Analysts at Goodbody pointed out that the "rate of growth in online remains well ahead of the majority of its peers", with UK Retail helped by large scale closures by William Hill. 

"While the shares have rebounded strongly over the last 6 months, we would argue the valuation remains attractive given the growth outlook and improving FCF characteristics," they added.

House broker Shore Capital forecasts around £50mln of impact from the Ladbrokes integration and £10mln from NEDs acquisition in Australia, partly offset by £25mln from UK regulatory factors.

Analysts at Peel Hunt added that “continued good trading should see GVC back in the FTSE 100 and on more investors’ agendas".

UBS issued a note on Friday warning "regulation remains the key focus and risk" for the sector but initiated coverage of GVC with a 'buy' recommendation for its "favourable risk reward, and attractive valuation even in a downside scenario".

   --Adds share price, broker comment.--

Quick facts: GVC Holdings

Price: 822.6 GBX

AIM:GVC
Market: AIM
Market Cap: £4.8 billion
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