GVC Holdings |
Dividends resume ahead of schedule |
Special dividend/update |
Gaming |
3 November 2016 |
Share price performance
Business description
Next events
Analysts
GVC Holdings is a research client of Edison Investment Research Limited |
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GVC is returning to the dividend payers list sooner than expected, with a 10c/share special dividend for 2016. This further demonstrates management’s excellent progress integrating bwin and growing the enlarged business. Thereafter, a 50% payout policy implies a yield of over 3% for 2017e. With considerable momentum building in terms of cost-cutting, product enhancements and more focused marketing, we are confident in our growth forecasts (2017e EPS up 80%), on which basis the 2017e EV/EBITDA of 9.5x represents excellent value.
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 |
202.1 |
102.9 |
31.3 |
10.0 |
24.7 |
1.3 |
12/17e |
912.0 |
250.0 |
188.4 |
56.2 |
26.0 |
13.8 |
3.4 |
12/18e |
960.0 |
285.0 |
234.0 |
69.0 |
33.5 |
11.2 |
4.3 |
Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma includes 12 months of bwin.
Special dividend and ongoing dividend policy
GVC had said it would take a 2016 dividend holiday under the terms of its Cerberus loan facility, put in place for the bwin acquisition. That loan will now be repaid shortly before 2 February 2017 (avoiding anniversary fees) and replaced with much cheaper Nomura debt (an initial c 2% versus 12.5%, see our Update note of 4 August). This, and positive trading, has prompted GVC to declare a 10c/share special dividend for 2016, which will be paid in February 2017. GVC has now also announced a policy of distributing 50% of annualised free cash flow (operating cash flow less tax, interest and capex) split c 40%/60% H1/H2. This was broadly in line with our previous expectation; we have marginally increased our dividend forecasts for 2017 and 2018 from 25.0c and 32.5c to 26.0c and 33.5c respectively.
Positive trading update
GVC has announced a 12% increase in net gaming revenue (NGR) for Q316, or 15% at constant currency. On this basis, we have slightly increased our full year revenue forecasts (2016e now €885m, up from €860m) but left our profit forecasts unchanged (some of the excess revenue going towards staff bonusing). Adjusting our cash flow for the higher dividend payments still leaves the group cash neutral by end 2018. Other recent newsflow includes a raft of gaming content deals to further improve the product offering (eg Scientific Games, Realistic, Microgaming).
Valuation: 2017e EV/EBITDA 9.5x
After a very strong run, GVC shares ran into a little profit taking in mid-October, yet today’s news confirms ongoing excellent progress and management confidence. The group should turn strongly cash generative in 2017. GVC’s 2017e EV/EBITDA of 9.5x is only in line with the peer group average despite its above-average growth prospects, and the prospective yield further underpins the share’s attractions.
Exhibit 1: Financial summary
€m |
2014 |
2015 |
2016p* |
2017e |
2018e |
||
Year end 31 December |
(IFRS) |
(IFRS) |
(IFRS) |
(IFRS) |
(IFRS) |
||
PROFIT & LOSS |
|||||||
Net gaming revenue |
|
|
224.8 |
247.7 |
885.0 |
912.0 |
960.0 |
Cost of Sales |
(101.5) |
(112.4) |
(426.3) |
(442.3) |
(470.4) |
||
Gross Profit (contribution) |
123.3 |
135.4 |
458.7 |
469.7 |
489.6 |
||
EBITDA |
|
|
49.2 |
54.1 |
202.1 |
250.0 |
285.0 |
Depreciation and amortisation |
|
|
(5.5) |
(1.4) |
(35.0) |
(38.0) |
(41.0) |
Operating Profit (norm) |
|
|
43.7 |
52.7 |
167.1 |
212.0 |
244.0 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
(52.2) |
(45.0) |
(40.0) |
||
Exceptional/ one-off items |
0.0 |
(24.5) |
(145.0) |
(5.0) |
0.0 |
||
Share based payments |
(0.7) |
(0.4) |
(15.0) |
0.0 |
0.0 |
||
Operating Profit |
42.9 |
27.7 |
(45.1) |
162.0 |
204.0 |
||
Net finance charges (interest plus fees) |
(0.1) |
(2.2) |
(64.2) |
(23.6) |
(10.0) |
||
Other financial expense |
(1.6) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
41.3 |
50.0 |
102.9 |
188.4 |
234.0 |
Profit Before Tax (FRS 3) |
|
|
41.3 |
25.5 |
(109.4) |
138.4 |
194.0 |
Tax |
(0.7) |
(0.8) |
4.0 |
(7.5) |
(11.7) |
||
Profit After Tax (norm) |
40.6 |
49.2 |
97.8 |
180.9 |
222.3 |
||
Profit After Tax (FRS 3) |
40.6 |
24.7 |
(105.4) |
130.9 |
182.3 |
||
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 |
31.3 |
56.2 |
69.0 |
EPS - (IFRS) (c) |
|
|
66.4 |
40.2 |
(36.1) |
44.8 |
60.2 |
Dividend per share declared (c) |
55.5 |
56.0 |
10.0 |
26.0 |
33.5 |
||
Dividend per share paid (c) |
55.0 |
56.0 |
0.0 |
27.0 |
31.5 |
||
Gross Margin (%) |
54.8 |
54.6 |
51.8 |
51.5 |
51.0 |
||
EBITDA Margin (%) |
21.9 |
21.8 |
22.8 |
27.4 |
29.7 |
||
Operating Margin (before GW and except.) (%) |
19.4 |
21.3 |
18.9 |
23.2 |
25.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
159.2 |
159.2 |
1,681.5 |
1,685.5 |
1,689.5 |
Intangible Assets |
154.3 |
155.2 |
1,660.0 |
1,660.0 |
1,660.0 |
||
Tangible Assets |
1.1 |
1.4 |
20.0 |
24.0 |
28.0 |
||
Deferred tax asset |
3.8 |
2.6 |
1.5 |
1.5 |
1.5 |
||
Current Assets |
|
|
49.5 |
72.6 |
535.0 |
425.0 |
416.0 |
Stocks |
0.0 |
3.8 |
0.0 |
0.0 |
0.0 |
||
Debtors |
31.7 |
40.6 |
140.0 |
150.0 |
160.0 |
||
Cash |
4.8 |
13.4 |
285.0 |
155.0 |
126.0 |
||
Customer balances |
13.0 |
14.8 |
110.0 |
120.0 |
130.0 |
||
Current Liabilities |
|
|
(50.4) |
(81.0) |
(320.0) |
(450.0) |
(385.0) |
Creditors |
(46.4) |
(77.3) |
(290.0) |
(300.0) |
(310.0) |
||
Short term borrowings |
(4.1) |
(3.7) |
(30.0) |
(150.0) |
(75.0) |
||
Long Term Liabilities |
|
|
(8.8) |
(22.6) |
(480.0) |
(180.0) |
(130.0) |
Long term borrowings |
(3.1) |
(19.8) |
(400.0) |
(100.0) |
(50.0) |
||
Other long term liabilities |
(5.7) |
(2.8) |
(80.0) |
(80.0) |
(80.0) |
||
Net Assets |
|
|
149.5 |
128.1 |
1,416.5 |
1,480.5 |
1,590.5 |
CASH FLOW |
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Operating Cash Flow |
|
|
48.5 |
62.5 |
26.5 |
207.5 |
260.0 |
Tax |
(0.5) |
(0.7) |
(4.6) |
(15.0) |
(18.0) |
||
Net Interest |
(0.1) |
0.0 |
(46.7) |
(23.6) |
(10.0) |
||
Capex |
(5.3) |
(6.2) |
(40.0) |
(40.0) |
(40.0) |
||
Acquisitions/disposals |
(8.0) |
(2.4) |
(1,510.0) |
0.0 |
0.0 |
||
Financing |
0.9 |
(24.5) |
1,439.7 |
0.0 |
0.0 |
||
Dividends |
(33.6) |
(34.3) |
0.0 |
(79.1) |
(95.4) |
||
Net Cash Flow |
1.9 |
(5.6) |
(135.0) |
49.8 |
96.6 |
||
Opening net debt/(cash) |
|
|
4.3 |
2.4 |
10.2 |
145.0 |
95.0 |
HP finance leases initiated |
(0.6) |
(1.5) |
0.0 |
0.0 |
0.0 |
||
FX/ Other |
0.7 |
(0.7) |
0.2 |
0.2 |
(0.5) |
||
Closing net debt/(cash) |
|
|
2.4 |
10.2 |
145.0 |
95.0 |
(1.0) |
Source: GVC accounts, 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).
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