GVC Holdings PLC (LON:GVC) shares surged on Monday after the Ladbrokes owner reduced the expected earnings impact of the coronavirus pandemic by 50%.
In an update, the FTSE 250 group said as a result of “a number of mitigating actions” it now expected its earnings (EBITDA) to be reduced by £50mln per month compared to previous estimates of £100mln.
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As a result of the lower loss forecast, GVC said its monthly cash outflow will now be limited to around £15mln, adding that it was “confident” that further cost actions will allow it to achieve its target of cashflow breakeven.
While the company said it had started the year well with net gaming revenue (NGR) up 1% in the first quarter, it said the closure of its retail outlets and the cancellation of sporting fixtures has “significantly reduced revenue from mid-March”.
As a result of the “ongoing uncertainty” around the duration of government lockdown measures across the world, GVC also scrapped its second interim dividend of 17.6p per share, worth around £103mln.
“As our [first quarter] trading numbers once again demonstrate, GVC is a business that, in normal times, delivers an outstanding performance. However, while our global and product diversification is standing us in good stead during the current uncertainty, the [coronavirus] pandemic is posing an unprecedented challenge to our business and our industry”, said chief executive Kenneth Alexander.
“We are responding decisively, and have put in place a range of measures to keep our people safe, strengthen our financial position, limit cash outflow, preserve jobs and maintain a compelling customer offer. I am confident that we will emerge from this period in a position of strength, and we will be well placed to take advantage of a range of attractive growth opportunities which we believe will be available to us”, he added.
In a note on Monday, analysts at Peel Hunt, which rate GVC at ‘buy’ with a 1,030p target price, said they expected the company to make “material progress” towards its cashflow breakeven target, and that ongoing discussions around holding sports matches behind closed doors will “provide more content and more potential for betting revenue”.
“With the shares trading on sub-5x recovered earnings, the business well able to withstand the current level of cash burn and more sport likely on the way, we believe the shares are undervalued”, the broker said.
Meanwhile, analysts at Shore Capital said GVC “appears well positioned to trade through the current environment and come the (sic) other side in a "relatively" stronger position”.
The shares jumped 13.4% to 548.3p in early trading.