GVC Holdings
Written by
GVC Holdings |
Success rewarded |
Disposal |
Travel & leisure |
19 December 2016 |
Share price performance
Business description
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GVC Holdings is a research client of Edison Investment Research Limited |
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GVC has announced the sale of its payments business Kalixa for €29m, as expected. In addition, and hard on the heels of the increased special dividend for shareholders (announced 15 December), GVC has reported that directors are to receive cash alternative payments in respect of options that have vested. The combined impact is a small (2%) upgrade to our 2017e normalised EPS. GVC goes into 2017 with very strong positive momentum that is still not reflected its EV/EBITDA of 9.6x.
Year |
Revenue (€m) |
EBITDA* |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
224.8 |
49.2 |
41.3 |
61.4 |
55.5 |
12.6 |
7.2 |
12/15 |
247.7 |
54.1 |
50.0 |
76.4 |
56.0 |
10.1 |
7.2 |
12/16p** |
885.0 |
204.5 |
105.3 |
32.1 |
14.9 |
24.0 |
1.9 |
12/17e |
909.0 |
250.0 |
188.0 |
55.4 |
26.0 |
13.9 |
3.4 |
12/18e |
960.0 |
285.0 |
234.0 |
68.2 |
33.5 |
11.3 |
4.3 |
Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma includes 12 months of bwin.
Sale of Kalixa Group
The Kalixa payment processing business was non-core within bwin and its sale to Senjō Group Pte of Singapore for €29m (total up to €35.5m) is good news. Kalixa joins a large payments specialist and will continue to service GVC under an existing contract. Kalixa lost €7.0m in 2015 and we forecast break-even in 2017 so there is no effect on our profit forecasts. We have adjusted 2017e revenue by €16m. The deal will complete in 2017 with the final net cash proceeds depending on completion account adjustments.
Share options: Cash alternative
GVC has always placed considerable emphasis on the importance of incentive programmes for both management and staff. The CEO/CFO remuneration packages put in place at the time of the bwin acquisition did not provide for any bonus or any salary increase; instead they participated in a new 2015 LTIP. Now, with the chairman, they are entitled to receive 3.7m options between them at prices of £4.22 and £4.67, worth a total of £8.97m (€10.67m). To cover the cost of the options and tax they would have needed to sell c 80%. There is no effect on 2016 forecast normalised PBT or EPS since we do not include share based payments in our normalised calculations and the interest impact is minimal. There is a small (2%) positive impact on our 2017 normalised EPS (now 55.4c, up from 54.3c), due to the lower diluted share capital. The directors’ shareholdings are unchanged and continued to represent a sizeable part of their personal wealth (1.9m shares or £12m in the case of the CEO Kenny Alexander).
Valuation: 2017 EV/EBITDA still only 9.6x
GVC’s shares bounced a little on last week’s trading update and dividend news (Edison update, 15 December) but the 2017e EV/EBITDA is still only 9.6x, which we believe is excellent value given GVC’s 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 |
|||||||
Revenue |
|
|
224.8 |
247.7 |
885.0 |
909.0 |
960.0 |
Cost of Sales |
(101.5) |
(112.4) |
(436.9) |
(459.0) |
(487.6) |
||
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) |
(9.0) |
0.0 |
||
Share based payments |
(0.7) |
(0.4) |
(15.0) |
0.0 |
0.0 |
||
Operating Profit |
42.9 |
27.7 |
(82.5) |
81.0 |
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) |
59.0 |
114.0 |
Tax |
(0.7) |
(0.8) |
4.0 |
(15.0) |
(21.1) |
||
Profit After Tax (norm) |
40.6 |
49.2 |
100.1 |
172.9 |
213.0 |
||
Profit After Tax (FRS 3) |
40.6 |
24.7 |
(140.7) |
43.9 |
93.0 |
||
Average Number of Shares Outstanding (m) |
61.1 |
61.3 |
292.0 |
292.5 |
303.0 |
||
EPS - normalised fully diluted (c) |
|
|
61.4 |
76.4 |
32.1 |
55.4 |
68.2 |
EPS - (IFRS) (c) |
|
|
66.4 |
40.2 |
(48.2) |
15.0 |
30.7 |
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 |
25.3 |
||
Gross Margin (%) |
54.8 |
54.6 |
50.6 |
49.5 |
49.2 |
||
EBITDA Margin (%) |
21.9 |
21.8 |
23.1 |
27.5 |
29.7 |
||
Operating Margin (before GW and except.) (%) |
19.4 |
21.3 |
18.9 |
23.1 |
25.5 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
159.2 |
159.2 |
1,686.5 |
1,572.5 |
1,477.5 |
Intangible Assets |
154.3 |
155.2 |
1,660.0 |
1,541.0 |
1,441.0 |
||
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 |
530.0 |
425.0 |
426.0 |
Stocks |
0.0 |
3.8 |
0.0 |
0.0 |
0.0 |
||
Debtors |
31.7 |
40.6 |
140.0 |
140.0 |
160.0 |
||
Cash |
4.8 |
13.4 |
280.0 |
165.0 |
136.0 |
||
Customer balances |
13.0 |
14.8 |
110.0 |
120.0 |
130.0 |
||
Current Liabilities |
|
|
(50.4) |
(81.0) |
(320.0) |
(440.0) |
(385.0) |
Creditors |
(46.4) |
(77.3) |
(290.0) |
(290.0) |
(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 |
1,426.5 |
1,387.5 |
1,398.5 |
CASH FLOW |
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Operating Cash Flow |
|
|
48.5 |
62.5 |
24.2 |
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) |
15.0 |
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) |
(139.8) |
65.0 |
96.0 |
||
Opening net debt/(cash) |
|
|
4.3 |
2.4 |
10.2 |
150.0 |
85.0 |
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 |
150.0 |
85.0 |
(11.0) |
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). ** 2017 disposals is assumed net proceeds from the Kalixa sale: €29.0m agreed cash consideration is subject to completion account adjustments and as a payment processor these may be material; consideration is capped at €35.5m. There will also be a dividend for GVC before completion (free cash flow over and above €2.1m). We have conservatively assumed that the final cash impact of the disposal (net of expenses) is c €15m.
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