GVC Holdings — Update 14 December 2016

GVC Holdings — Update 14 December 2016

GVC Holdings

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GVC Holdings

Increased special dividend

Trading update

Travel & leisure

15 December 2016

Price

615.00p

Market cap

£1,796m

€1.19/$1.27/£

Net debt (€m) at 24 July 2016

154

Shares in issue

292.0m

Free float

94%

Code

GVC

Primary exchange

LSE (Premium segment)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.1)

(15.2)

49.1

Rel (local)

(6.6)

(18.1)

28.7

52-week high/low

769.00p

415.00p

Business description

GVC Holdings is a leading e-gaming operator in both B2C and B2B markets with four main product verticals (sports, casino, poker, bingo). Around 55% of revenues come from regulated and/or taxed markets. GVC acquired bwin.party digital entertainment (bwin) on 1 February 2016 for €1.51bn.

Next events

Final results

March 2017

Analysts

Jane Anscombe

+44 (0)20 3077 5740

Katherine Thompson

+44 (0)20 3077 5730

GVC Holdings is a research client of Edison Investment Research Limited

GVC has released a positive pre-close update, indicating that results will be at the upper end of market expectations, and has upped the planned 2016 special dividend by 49%, from 10c to 14.9c/share. This confirms excellent momentum in the business, with revenue synergies beginning to augment the bwin cost synergies. We have increased our FY16 EBITDA estimate by £2.4m to £204.5m. Management is delivering on its ambitious targets, yet the 2017e EV/EBITDA is now only 9.2x.

Year
end

Revenue (€m)

EBITDA*
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

224.8

49.2

41.3

61.4

55.5

11.9

7.6

12/15

247.7

54.1

50.0

76.4

56.0

9.6

7.7

12/16p**

885.0

204.5

105.3

32.1

14.9

22.8

2.0

12/17e

925.0

250.0

188.0

54.3

26.0

13.5

3.6

12/18e

976.0

285.0

234.0

66.9

33.5

10.9

4.6

Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma includes 12 months of bwin.

Increased special dividend

GVC is increasing its proposed special dividend to 14.9c or 12.5p/share (fixed), to be paid on 14 February 2017. This demonstrates management’s confidence in the progress of the bwin integration, with a cumulative €95m of cost synergies expected to be realised by end 2017 (of the total forecast €125m). We expect the main platform migrations to be completed by the end of Q217, and marketing to rise from 21% in H116 to 23-24% in 2017 to capitalise on cross-sell and revenue synergies. Traditionally a generous dividend payer, GVC plans to return to a 50% payout policy, but strong cash generation means that we still expect net debt to fall from €145m at end 2016 to €95m at end 2017 and to be eliminated by end 2018.

Positive momentum confirmed: Q4 revenue up 12%

Q4 (to 12 December) net gaming revenue is up 12% (pro forma, including bwin), or 14% at constant currency, with sports up 19% and gaming up 8%, against a strong comparative. Current consensus is for 2016 revenue of €852-885m and clean EBITDA of €202-205.5m; we have increased our EBITDA to €204.5m (from €202.1m) but left 2017/18e unchanged at €250m and €285m respectively to allow for increasing gaming taxes as markets regulate.

Valuation: Good time to take another look

Today’s news re-confirms ongoing excellent progress. Sector sentiment has been adversely affected by UK government’s triennial review of stakes and prizes, but much of the focus appears to be on FOBT betting terminals and we do not expect it to have a material effect on GVC. With recent profit-taking having sent the shares down from a peak of 769p in September, the 2017e EV/EBITDA of only 9.2x versus a peer group average of 9.4x suggests that now is a very good time for investors to take another look at GVC, given its strong growth and dividend prospects.

Exhibit 1: Financial summary

€m

2014

2015

2016p*

2017e

2018e

Year end 31 December

(IFRS)

(IFRS)

(IFRS)

(IFRS)

(IFRS)

PROFIT & LOSS

Net gaming revenue

 

 

224.8

247.7

885.0

925.0

976.0

Cost of Sales

(101.5)

(112.4)

(436.9)

(474.9)

(503.6)

Gross Profit (contribution)

123.3

135.4

448.1

450.0

472.4

EBITDA

 

 

49.2

54.1

204.5

250.0

285.0

Depreciation and amortisation

 

 

(5.5)

(1.4)

(37.0)

(40.0)

(40.0)

Operating Profit (norm)

 

 

43.7

52.7

167.5

210.0

245.0

Amortisation of acquired intangibles

0.0

0.0

(120.0)

(120.0)

(120.0)

Exceptional/ one-off items

0.0

(24.5)

(115.0)

(5.0)

0.0

Share based payments

(0.7)

(0.4)

(15.0)

0.0

0.0

Operating Profit

42.9

27.7

(82.5)

85.0

125.0

Net finance charges (interest plus fees)

(0.1)

(2.2)

(62.3)

(22.3)

(11.4)

Other financial expense/ associates

(1.6)

0.0

0.2

0.3

0.4

Profit Before Tax (norm)

 

 

41.3

50.0

105.3

188.0

234.0

Profit Before Tax (FRS 3)

 

 

41.3

25.5

(144.7)

63.0

114.0

Tax

(0.7)

(0.8)

4.0

(13.2)

(18.7)

Profit After Tax (norm)

40.6

49.2

100.1

174.8

215.3

Profit After Tax (FRS 3)

40.6

24.7

(140.7)

49.8

95.3

Average Number of Shares Outstanding (m)

61.1

61.3

292.0

292.0

303.0

EPS - normalised fully diluted (c)

 

 

61.4

76.4

32.1

54.3

66.9

EPS - (IFRS) (c)

 

 

66.4

40.2

(48.2)

17.1

31.4

Dividend per share declared (c)

55.5

56.0

14.9

26.0

33.5

Dividend per share paid (c)

55.0

56.0

0.0

25.3

29.0

Gross Margin (%)

54.8

54.6

50.6

48.7

48.4

EBITDA Margin (%)

21.9

21.8

23.1

27.0

29.2

Operating Margin (before GW and except.) (%)

19.4

21.3

18.9

22.7

25.1

BALANCE SHEET

Fixed Assets

 

 

159.2

159.2

1,686.5

1,591.5

1,496.5

Intangible Assets

154.3

155.2

1,660.0

1,560.0

1,460.0

Tangible Assets

1.1

1.4

25.0

30.0

35.0

Deferred tax asset

3.8

2.6

1.5

1.5

1.5

Current Assets

 

 

49.5

72.6

535.0

425.0

416.0

Stocks

0.0

3.8

0.0

0.0

0.0

Debtors

31.7

40.6

140.0

150.0

160.0

Cash

4.8

13.4

285.0

155.0

126.0

Customer balances

13.0

14.8

110.0

120.0

130.0

Current Liabilities

 

 

(50.4)

(81.0)

(320.0)

(450.0)

(385.0)

Creditors

(46.4)

(77.3)

(290.0)

(300.0)

(310.0)

Short term borrowings

(4.1)

(3.7)

(30.0)

(150.0)

(75.0)

Long Term Liabilities

 

 

(8.8)

(22.6)

(470.0)

(170.0)

(120.0)

Long term borrowings

(3.1)

(19.8)

(400.0)

(100.0)

(50.0)

Other long term liabilities

(5.7)

(2.8)

(70.0)

(70.0)

(70.0)

Net Assets

 

 

149.5

128.1

1,431.5

1,396.5

1,407.5

CASH FLOW

Operating Cash Flow

 

 

48.5

62.5

29.2

207.5

268.9

Tax

(0.5)

(0.7)

(9.6)

(15.0)

(18.0)

Net Interest

(0.1)

0.0

(46.7)

(23.7)

(11.4)

Capex

(5.3)

(6.2)

(40.0)

(40.0)

(40.0)

Acquisitions/disposals

(8.0)

(2.4)

(1,490.8)

0.0

0.0

Financing

0.9

(24.5)

1,423.1

0.0

(5.1)

Dividends

(33.6)

(34.3)

0.0

(78.8)

(98.5)

Net Cash Flow

1.9

(5.6)

(134.8)

50.0

95.9

Opening net debt/(cash)

 

 

4.3

2.4

10.2

145.0

95.0

HP finance leases initiated

(0.6)

(1.5)

0.0

0.0

0.0

FX/ Other

0.7

(0.7)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

2.4

10.2

145.0

95.0

(1.0)

Source: GVC Holdings, Edison Investment Research. Note: *2016p is pro forma, including bwin.party for 12 months (reported will include it from the date of acquisition, 1 February 2016).

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GVC Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GVC Holdings and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. . The research analyst primarily responsible for the preparation of this report personally holds an equity position in the company of less than 1%.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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