GVC Holdings
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GVC Holdings |
Strong momentum going into deal close |
Trading update |
Travel & leisure |
11 January 2016 |
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GVC has reported Q415 daily revenue up 10.0% (constant currency +21.3%) over Q414, revealing a company going into its game-changing acquisition of bwin.party from a position of strength. This follows on from bwin’s recent trading update, which revealed its first quarterly y-o-y growth (up 5%) in more than two years. The bwin.party deal is scheduled to close on 1 February, after which we will reintroduce forecasts. GVC already has a detailed plan in place for achieving €125m of cost synergies, while also seeking to set bwin on a path of sustainable top-line growth to maximise the returns to shareholders from the deal.
Year end |
Revenue (€m) |
EBITDA* |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/12 |
60 |
15.5 |
10.6 |
31.6 |
22.0 |
19.9 |
3.5 |
12/13 |
170 |
38.3 |
32.7 |
57.2 |
48.5 |
11.0 |
7.7 |
12/14 |
225 |
49.2 |
41.3 |
61.4 |
55.5 |
10.2 |
8.8 |
Note: *Clean/normalised, excluding exceptional items.
Revenue up 11.7% y-o-y in Q415
GVC has reported average daily revenue of €712k in Q415, up 10.0% on Q414. Both Sports and Gaming performed well, up 5.6% and 13.9% respectively. These numbers are particularly impressive when set against the backdrop of significant currency depreciation in two of GVC’s most important markets: Turkey, where the lira is down c 20% y-o-y versus the euro, and Brazil, where the real has been off by as much as 40% against the euro during the period. On a constant currency basis GVC recorded growth of 21.3% y-o-y between Q414 and Q415.
Shareholders back rationale for bwin deal
We believe that GVC’s management is well advanced in its preparations towards the business integration and expected value creation following the closure of the deal. More than 99% of the combined shareholder base voted in favour of the deal in December, overwhelming approval for the plans laid out by management. These include substantial synergies of €125m a year to be realised by Q417, mainly from streamlining duplicate business functions, particularly in sports betting where the two companies have complementary offerings. The enlarged group will offer greater revenue diversification from a geographic and product perspective and the opportunity for GVC’s management to leverage its proven expertise over a larger business, as detailed in our Update report dated 20 November. After a dividend holiday in 2016, the intention is to pursue an “aggressive and progressive” dividend policy as soon as possible, potentially from early 2017.
Trading in new shares expected to start 2 February
The deal is scheduled to close on 1 February, with trading in the new shares to begin the following day. The shares have rallied strongly over the last month and, at the current price of 469.5p, the offer values bwin at £1,150m. The pro forma market capitalisation of GVC (based on the enlarged share capital) is £1,371m.
GVC: Steady revenue growth progression
As GVC is an Edison research client, we are unable to publish forecasts or comment on valuation during the bid process.
Exhibit 1 illustrates the consistent revenue growth that GVC has achieved over the last eight quarters. Average daily revenue of €712k in Q415 implies a Q415 total of €65.5m, up 10% on Q414. Both Sports and Gaming performed well, up 5.6% and 13.9% respectively, and the Q415 sports margin of 9.1% was comparable to that achieved in 2014. The reported 2015 full year total net gaming revenue (NGR) was €247.7m, 10.2% higher than in 2014. It compares with our last published 2015 revenue forecast (July 2015) of €240.0m. It should be noted that growth in 2015 has been achieved despite the currency headwinds referred to above. Moreover, 2015 lacked a major summer football tournament and the consequent revenue uplift, something from which the enlarged group will benefit in the summer of 2016 with the UEFA Euro 2016.
Exhibit 1: GVC average daily KPIs
Daily average €000s |
Q114 |
Q214 |
Q314 |
Q414 |
2014 |
Q115 |
Q215 |
Q315 |
Q415 |
Y-o-y |
2015 |
Sports wagers |
3,765 |
3,907 |
3,995 |
4,366 |
4,009 |
4,558 |
4,544 |
4,371 |
4,959 |
13.6% |
4,609 |
Sports margin |
10.0% |
9.8% |
10.5% |
9.0% |
9.8% |
9.0% |
8.8% |
9.9% |
9.1% |
9.3% |
|
Sports NGR |
279 |
296 |
330 |
302 |
302 |
313 |
298 |
337 |
320 |
5.6% |
317 |
Gaming NGR |
280 |
306 |
325 |
345 |
314 |
352 |
373 |
330 |
392 |
13.9% |
362 |
Total NGR/day |
559 |
602 |
655 |
647 |
616 |
665 |
671 |
667 |
712 |
10.0% |
679 |
Number of days |
90 |
91 |
92 |
92 |
365 |
92 |
184 |
92 |
92 |
365 |
|
Total NGR (€m) |
50.3 |
54.8 |
60.3 |
59.5 |
224.8 |
61.2 |
123.5 |
61.4 |
65.5 |
10.0% |
247.7 |
Source: GVC Holdings
bwin.party: First y-o-y quarterly profit growth in more than two years
Exhibit 2: bwin.party digital entertainment KPIs
€m |
Q114 |
Q214 |
Q314 |
Q414 |
2014 |
Q115 |
Q215 |
Q315 |
Q415* |
Sports betting NGR |
64.7 |
60.8 |
58.8 |
49.1 |
233.4 |
58.0 |
50.8 |
54.3 |
N/A |
Casino/games NGR |
52.6 |
48.6 |
48.5 |
49.7 |
199.4 |
46.8 |
49.0 |
44.6 |
N/A |
Poker NGR |
24.4 |
18.3 |
17.5 |
18.5 |
78.7 |
16.8 |
15.6 |
13.3 |
N/A |
Bingo NGR |
13.7 |
12.7 |
12.1 |
13.0 |
51.5 |
13.8 |
13.0 |
12.7 |
N/A |
Total NGR |
155.4 |
140.4 |
136.9 |
130.3 |
563.0 |
135.4 |
128.4 |
124.9 |
136.8 |
Other |
10.3 |
11.0 |
11.8 |
15.8 |
48.9 |
19.9 |
12.8 |
8.5 |
N/A |
Total revenue |
165.7 |
151.4 |
148.7 |
146.1 |
611.9 |
155.3 |
141.2 |
133.4 |
N/A |
Source: bwin.party digital entertainment. Note: *Based on reported 5% y-o-y quarterly revenue growth, exact figures not yet provided.
bwin released a pre-close trading update on 5 January. Although no detailed breakdown was provided, the release detailed that the company had achieved y-o-y quarterly growth of 5% in net revenue in Q415. This was bwin’s first quarterly revenue rise in over two years and was driven primarily by strong performance in the sports and casino verticals, particularly through mobile channels. Excluding the impact of new VAT rules, the underlying increase in net revenue was 8%.
bwin also announced that its payment processing subsidiary Kalixa is also the beneficiary of a c €10m windfall resulting from the €21.2bn (including an earn-out of up to €4.7bn) sale of Visa Europe to Visa Inc. Completion of the transaction is expected during Q216. Kalixa will also be eligible to receive a share of the earn-out if it remains a Principal Member (or equivalent) of Visa for the duration of the four-year earn-out period.
Exhibit 3: Financial summary
€m |
2012 |
2013 |
2014 |
||
Year end 31 December |
(IFRS) |
(IFRS) |
(IFRS) |
||
PROFIT & LOSS |
|||||
Revenue (reported) |
|
|
60.3 |
170.0 |
224.8 |
Cost of Sales |
(23.8) |
(67.3) |
(101.5) |
||
Gross Profit (contribution) |
36.5 |
102.6 |
123.3 |
||
EBITDA |
|
|
15.5 |
38.3 |
49.2 |
Depreciation and amortisation |
|
|
(2.5) |
(3.7) |
(3.9) |
Betit put option charge |
|
|
0.0 |
0.0 |
(1.6) |
Operating Profit (norm) |
|
|
12.9 |
34.6 |
43.7 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
||
Exceptional/ one-off items |
0.2 |
(19.7) |
0.0 |
||
Share based payments/ options cash out from 2015 |
(0.1) |
(0.7) |
(0.7) |
||
Operating Profit |
13.0 |
14.1 |
42.9 |
||
Net interest |
0.0 |
(0.0) |
(0.1) |
||
Other financial expense |
(2.2) |
(1.1) |
(1.6) |
||
Profit Before Tax (norm) |
|
|
10.6 |
32.7 |
41.3 |
Profit Before Tax (FRS 3) |
|
|
10.8 |
13.0 |
41.3 |
Tax |
(0.5) |
(0.7) |
(0.7) |
||
Profit After Tax (norm) |
10.1 |
32.0 |
40.6 |
||
Profit After Tax (FRS 3) |
9.2 |
12.3 |
40.6 |
||
Average Number of Shares Outstanding (m) |
31.6 |
54.6 |
61.1 |
||
EPS - normalised diluted (c) |
|
|
31.6 |
57.2 |
61.4 |
EPS - (IFRS) (c) |
|
|
29.3 |
22.5 |
66.4 |
Dividend per share - declared (c) |
22.0 |
48.5 |
55.5 |
||
Dividend per share (c) |
26.0 |
28.0 |
55.0 |
||
Gross Margin (%) |
60.5 |
60.4 |
54.8 |
||
EBITDA Margin (%) |
25.6 |
22.5 |
21.9 |
||
Operating Margin (before GW and except.) (%) |
21.4 |
20.3 |
19.4 |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
66.2 |
154.8 |
159.2 |
Intangible Assets |
65.4 |
153.9 |
154.3 |
||
Tangible Assets |
0.7 |
0.9 |
1.1 |
||
Deferred tax asset |
0.1 |
0.0 |
3.8 |
||
Current Assets |
|
|
24.9 |
44.6 |
49.5 |
Stocks |
0.0 |
0.0 |
0.0 |
||
Debtors |
18.3 |
25.8 |
31.7 |
||
Cash |
6.6 |
5.5 |
4.8 |
||
Customer balances |
0.0 |
13.3 |
13.0 |
||
Current Liabilities |
|
|
(20.4) |
(44.3) |
(50.4) |
Creditors |
(20.4) |
(40.8) |
(46.4) |
||
Short term borrowings |
0.0 |
(3.5) |
(4.1) |
||
Long Term Liabilities |
|
|
(12.3) |
(14.0) |
(8.8) |
Long term borrowings |
0.0 |
(6.4) |
(3.1) |
||
Other long term liabilities |
(12.3) |
(7.6) |
(5.7) |
||
Net Assets |
|
|
58.5 |
141.1 |
149.5 |
CASH FLOW |
|||||
Operating Cash Flow |
|
|
10.7 |
26.6 |
48.5 |
Tax |
(1.9) |
(0.4) |
(0.5) |
||
Net Interest |
0.0 |
0.0 |
(0.1) |
||
Capex |
(1.1) |
(0.0) |
(5.3) |
||
Acquisitions/disposals |
(2.9) |
(96.4) |
(8.0) |
||
Financing |
0.2 |
77.8 |
0.9 |
||
Dividends |
(8.2) |
(15.0) |
(33.6) |
||
Net Cash Flow |
(3.2) |
(7.5) |
1.9 |
||
Opening net debt/(cash) |
|
|
(9.9) |
(6.6) |
4.3 |
HP finance leases initiated |
0.0 |
(2.1) |
(0.6) |
||
FX/ Other |
0.0 |
(1.3) |
0.7 |
||
Closing net debt/(cash) |
|
|
(6.6) |
4.3 |
2.4 |
Source: GVC Holdings, Edison Investment Research
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