Q216 trading update – firmly on track

GVC Holdings 13 July 2016 Update

GVC Holdings

Q216 trading update – firmly on track

Trading update

Travel & leisure

 

13 July 2016

Price

614.00p

Market cap

£1,792m

£0.85/$1.10/TRY3.20/€

Net debt (€m) at 17 April 2016

193

Shares in issue

291.8m

Free float

95%

Code

GVC

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

19.9

36.0

Rel (local)

(3.5)

13.6

36.8

52-week high/low

622.50p

372.00p

Business description

GVC Holdings is a leading provider of B2B and B2C services to the online gaming and sports betting markets. It announced a recommended bid for bwin.party digital entertainment on 4 September 2015 and the transaction was completed on 1 February 2016.

Next events

Interim results

20 September 2016

Analysts

Eric Opara

+44 (0)20 3681 2524

Jane Anscombe

+44 (0)20 3077 5740

GVC Holdings is a research client of Edison Investment Research Limited

GVC’s July 2016 trading update reveals its early progress after its February acquisition of bwin.party has continued into Q216. Q2 net gaming revenue (NGR) per day rose by 11% y-o-y on a pro-forma basis (+16% on a constant currency basis). Pro-forma H116 NGR was up 8% to €439m (+11% CC) with both GVC and bwin brands delivering growth. Recent operational progress has included a successful application to the Premium Segment of the LSE. Forthcoming challenges to be navigated include the H216 platform migration. However, we believe GVC’s positive update underpins our full-year forecasts, which remain unchanged.

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

10.0

9.0

12/15

247.7

54.1

50.0

76.4

56.0

8.0

9.1

12/16p**

850.0

196.5

81.2

25.2

0.0

24.4

N/A

12/17e

878.5

250.0

167.8

50.0

25.0

12.3

4.1

12/18e

930.0

285.0

223.8

66.0

32.5

9.3

5.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments; **pro-forma

Both GVC and bwin labels delivering growth

Both GVC and bwin labels achieved pro-forma y-o-y NGR growth in H116 (+15% and +9% respectively on a CC basis). Growth accelerated in Q216 due to a mixture of successful early product initiatives and favourable Euro 2016 results, which saw the Q2 sports margin rise to 9.9% from 7.9% a year ago. While we would normally expect a c 50/50 NGR split for H1 vs H2, we have allowed for some contingency in our H216 forecasts due to the ongoing integration work. As a result we expect H216 revenues of €411m vs €439m in H1. There are also a number of potential regulatory and taxation changes expected in H2. Although we do not expect them to have a material impact, they are likely to exert some marginal cost pressure.

Operational progress

Notable operational highlights include the aforementioned upgrade to the Premium Segment of the LSE Official list (effective 1 August), the New Jersey gaming licence approval and the 10-year B2B platform licensing deal signed with Betfred. Much of the integration heavy lifting that underpins the €125m of forecast synergies will take place in H216 including the platform migration. The migration will be staggered with GVC’s largest markets being migrated last to minimise any potential disruptions.

Valuation: Organic growth plus further M&A potential

GVC has experienced strong share price appreciation since the completion of the bwin deal, commensurate with the encouraging start to the integration process. On an EV/EBITDA basis, the enlarged group trades at a slight premium to its peer group on our 2017 forecasts (9.4x vs 8.9x), justified by its geographically diversified revenue stream and what we expect to be strong and growing cash generation going into 2018e when the full benefits of the integration process should be realised. We also note the potential for further value to be created through future M&A activity.

Exhibit 1: Financial summary

€m

2014

2015

2016p*

2017e

2018e

Year end 31 December

(IFRS)

(IFRS)

(IFRS)

(IFRS)

(IFRS)

PROFIT & LOSS

Revenue

 

 

224.8

247.7

850.0

878.5

930.0

Cost of Sales

(101.5)

(112.4)

(399.5)

(412.9)

(437.1)

Gross Profit (contribution)

123.3

135.4

450.5

465.6

492.9

EBITDA

 

 

49.2

54.1

196.5

250.0

285.0

Depreciation and amortisation

 

 

(5.5)

(1.4)

(51.1)

(48.8)

(47.0)

Operating Profit (norm)

 

 

43.7

52.7

145.4

201.2

238.0

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptional/ one-off items

0.0

(24.5)

(90.0)

(5.0)

0.0

Share based payments

(0.7)

(0.4)

0.0

0.0

0.0

Operating Profit

42.9

27.7

55.4

196.2

238.0

Net interest

(0.1)

(2.2)

(64.2)

(33.4)

(14.3)

Other financial expense

(1.6)

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

41.3

50.0

81.2

167.8

223.8

Profit Before Tax (FRS 3)

 

 

41.3

25.5

(8.8)

162.8

223.8

Tax

(0.7)

(0.8)

(2.4)

(6.7)

(11.2)

Profit After Tax (norm)

40.6

49.2

78.7

161.0

212.6

Profit After Tax (FRS 3)

40.6

24.7

(11.3)

156.0

212.6

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

25.2

50.0

66.0

EPS - (IFRS) (c)

 

 

66.4

40.2

(3.9)

53.4

70.2

Dividend per share (c)

55.5

56.0

0.0

25.0

32.5

Gross Margin (%)

54.8

54.6

53.0

53.0

53.0

EBITDA Margin (%)

21.9

21.8

23.1

28.5

30.6

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

19.4

21.3

17.1

22.9

25.6

BALANCE SHEET

Fixed Assets

 

 

159.2

159.2

1,484.0

1,482.0

1,482.0

Intangible Assets

154.3

155.2

1,400.0

1,400.0

1,400.0

Tangible Assets

1.1

1.4

80.0

78.0

78.0

Deferred tax asset

3.8

2.6

4.0

4.0

4.0

Current Assets

 

 

49.5

72.6

456.0

320.0

378.3

Stocks

0.0

3.8

0.0

0.0

0.0

Debtors

31.7

40.6

110.0

115.0

120.0

Cash

4.8

13.4

221.0

75.0

123.3

Customer balances

13.0

14.8

125.0

130.0

135.0

Current Liabilities

 

 

(50.4)

(81.0)

(496.0)

(395.0)

(370.0)

Creditors

(46.4)

(77.3)

(290.0)

(295.0)

(295.0)

Short term borrowings

(4.1)

(3.7)

(206.0)

(100.0)

(75.0)

Long Term Liabilities

 

 

(8.8)

(22.6)

(215.0)

(94.0)

(64.0)

Long term borrowings

(3.1)

(19.8)

(200.0)

(80.0)

(50.0)

Other long term liabilities

(5.7)

(2.8)

(15.0)

(14.0)

(14.0)

Net Assets

 

 

149.5

128.1

1,229.0

1,313.0

1,426.3

CASH FLOW

Operating Cash Flow

 

 

48.5

62.5

20.2

225.0

265.0

Tax

(0.5)

(0.7)

(5.0)

(10.0)

(12.0)

Net Interest

(0.1)

0.0

(47.0)

(48.3)

(11.3)

Capex

(5.3)

(6.2)

(35.0)

(35.0)

(35.0)

Acquisitions/disposals

(8.0)

(2.4)

(1,553.0)

0.0

0.0

Financing

0.9

(24.5)

1,439.7

0.0

0.0

Dividends

(33.6)

(34.3)

0.0

(44.0)

(98.5)

Net Cash Flow

1.9

(5.6)

(180.1)

87.7

108.3

Opening net debt/(cash)

 

 

4.3

2.4

10.2

185.0

105.0

HP finance leases initiated

(0.6)

(1.5)

0.0

0.0

0.0

FX/ Other

0.7

(0.7)

5.2

(7.7)

(5.0)

Closing net debt/(cash)

 

 

2.4

10.2

185.0

105.0

1.7

Source: GVC Holdings, Edison Investment Research. Note: *Pro-forma.

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Germany

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

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