GVC (GVC) has always been at the riskier end of the online gaming market with a range of exposure to countries where the laws regulating the market are less than clear. The possibility of a sudden cessation in service is one reason why the gaming company has traditionally traded at huge discounts to the rest of the sector, with a dividend yield that has touched heights of over 20 per cent at certain points during the past few years. Risk, as any good gambler knows, is dependent on probabilities and, while it is true that GVC is never likely to be a widows and orphans share, the operational improvements the company has made since its acquisition of the rump of Sportingbet has opened up an interesting speculative opportunity.
- Benefit from cost savings
- More diversified than previously
- Hugely cash generative
- Excellent dividends
- Regulatory risks
The Sportingbet acquisition, alongside William Hill, which took on the company's operations in Australia, has yielded a rich seam of cost savings for GVC. The company now reckons that around 50 per cent of Sportingbet's cost base has been stripped, up from previous estimates of 40 per cent. The result of this is that Sportingbet has returned to profitability and a €46.8m (£39.10m) hole in its balance sheet has been plugged in double-quick time. It has also allowed GVC to reinstate its policy of paying quarterly dividends.
GVC | ||||
|---|---|---|---|---|
| ORD PRICE: | 328p | MARKET VALUE: | £199m | |
| TOUCH: | 323-332p | 12-MONTH HIGH: | 340p | LOW: 205p |
| DIVIDEND YIELD: | 9% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 225¢* | NET CASH: | €20.3m | |
| Year to 31 Dec | Turnover (€m) | Pre-tax profit (€m)** | Earnings per share (¢)** | Dividend per share (¢) |
|---|---|---|---|---|
| 2010 | 54.9 | 8.99 | 28.2 | 20.0 |
| 2011 | 44.3 | 3.97 | 11.9 | 21.0 |
| 2012 | 59.6 | 10.7 | 31.8 | 26.0 |
| 2013** | 154 | 24.4 | 44.1 | 26.0 |
| 2014** | 188 | 41.6 | 64.3 | 35.0 |
| % change | +22 | +70 | +46 | +35 |
Normal market size: 1,000 Matched bargain trading Beta: 0.13 *Includes intangibles of €147m, or 242¢ a share **Daniel Stewart forecasts, underlying PTP and EPS figures £1=€1.19 | ||||
The company is far more diversified post the Sportingbet acquisition than at any time previously, which helps mitigate some of the regulatory risks. The company also applies for licences wherever a clear regulatory regime exists - so far, it has a fully legal presence in Malta, the UK, South Africa, Italy, Germany, Denmark, Alderney and the Netherlands Antilles - and 47 per cent of its turnover is priced in euros.
However, it is GVC's presence in Turkey, where the government has recently tightened up fines against gaming operators and individual players, that could be a source of future problems as the company's second biggest currency by sales is the Turkish lira. The solution has been to open across as many new markets as possible and GVC is now the dominant player in the Latin American market where, for instance, recent half-year sales from Sportingbet increased by 24 per cent to €68m. The football world cup next year in Brazil should also give GVC a significant boost.
The diversified presence also mitigates the risks in already regulated markets. For example, the UK's so-called point-of-consumption tax (POC), which aims to tax betting operators based on where they take their bets, will affect companies like 32Red, BetFred and others with a big presence in Gibraltar. In GVC's case, the POC tax will have an impact of less €2m on revenues, reflecting its lower share of the UK market.
