GVC: investors bet on gambling firm’s rise

The betting giant took blows from bookmakers shuttering, but growth in poker, bingo and the US looks strong.

Despite a torrid first half of the year, betting titan GVC Holdings (LSE:GVC) has dug deep and so far emerged relatively unscathed.

Quite apart from the inevitable impacts of the pandemic, as sporting events all but ceased and its Ladbrokes and Coral betting shops were shut, other developments have taken some of the shine away from what had been a stellar share price performance.

In particular, the retirement of the chief executive was immediate and unexpected, with his replacement immediately thrown in at the deep end. At the same time, the announcement of an investigation by HMRC surrounding the group’s former Turkish online business sent some shivers through investors, although to date the company has maintained that it is unlikely to be affected.

Creeping regulation is par for the course in this sector. The £2 limit on Fixed Odds Betting Terminals and the removal of credit card gambling are evidence of the government’s determination not to let gambling habits get out of hand. The current Gambling Act Review poses further questions. 

Turning our attention to stocks, GVC’s acquisition spree and general investment into the business had raised some concerns around the level of net debt, especially given the current circumstances.

However, the thinks the figure will be broadly unchanged for the year.

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Having taken a pandemic hit, revenues for the period were down by 11%, and underlying pre-tax profit plunged 74%. Within UK Retail, the toxic combination of closed shops and little sport led to a 48% decline in net gaming revenues, with the pressure being unsurprisingly echoed in most of its other markets.

Despite these headwinds, GVC remains a stock where the prospects are both clear and very possibly lucrative.

The statement of the strategic priorities is headlined by the potential of the US market. The company’s joint venture with MGM Resorts in the form of BetMGM has already seen investment of $450 million (£343.8 million) and net gaming revenue is expected to be $130 million this year, even at this early stage.

GVC estimates that the entire market could be worth some $20 billion by 2025, as an increasing number of states in the US relax their gambling laws and sports betting takes a greater hold.

In the meantime, the company has been busy in adapting to pandemic challenges, with the cancellation of the dividend, a suspension in marketing spend and access to additional liquidity if required. 

Government schemes and business rates relief were also a boon, leading to two outcomes which represent particular achievements. Not only did the company remain cash neutral throughout lockdown, but the profit after tax figure is flat in comparison with the corresponding period last year. This is notable given the circumstances.

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GVC’s strength in terms of diversification was underlined as other strands of its business, such as poker and, in particular, bingo, took up some of the slack. Online gaming revenues were up 31% and online net gaming revenues up 19% as customers switched to alternative options. 

In spite of the more recent share price wobbles, the direction of travel is clear. Over the last year the shares have risen by 41%, as compared to a decline of 13% for the wider FTSE 100, which GVC was promoted to in June. 

The shares have also seen an increase of over 140% since their March low, showing renewed confidence in the company’s ability to adapt and survive. 

With GVC stating its intention to continue on its growth path, both at home and in other markets such as the US in particular, appetite for the stock is undiminished, and the market consensus of the shares as a strong ‘buy’ reflects that optimism.

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