GVC Holdings
Written by
GVC Holdings |
Increased special dividend |
Trading update |
Travel & leisure |
15 December 2016 |
Share price performance
Business description
Next events
Analysts
GVC Holdings is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
GVC has released a positive pre-close update, indicating that results will be at the upper end of market expectations, and has upped the planned 2016 special dividend by 49%, from 10c to 14.9c/share. This confirms excellent momentum in the business, with revenue synergies beginning to augment the bwin cost synergies. We have increased our FY16 EBITDA estimate by £2.4m to £204.5m. Management is delivering on its ambitious targets, yet the 2017e EV/EBITDA is now only 9.2x.
Year |
Revenue (€m) |
EBITDA* |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
224.8 |
49.2 |
41.3 |
61.4 |
55.5 |
11.9 |
7.6 |
12/15 |
247.7 |
54.1 |
50.0 |
76.4 |
56.0 |
9.6 |
7.7 |
12/16p** |
885.0 |
204.5 |
105.3 |
32.1 |
14.9 |
22.8 |
2.0 |
12/17e |
925.0 |
250.0 |
188.0 |
54.3 |
26.0 |
13.5 |
3.6 |
12/18e |
976.0 |
285.0 |
234.0 |
66.9 |
33.5 |
10.9 |
4.6 |
Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma includes 12 months of bwin.
Increased special dividend
GVC is increasing its proposed special dividend to 14.9c or 12.5p/share (fixed), to be paid on 14 February 2017. This demonstrates management’s confidence in the progress of the bwin integration, with a cumulative €95m of cost synergies expected to be realised by end 2017 (of the total forecast €125m). We expect the main platform migrations to be completed by the end of Q217, and marketing to rise from 21% in H116 to 23-24% in 2017 to capitalise on cross-sell and revenue synergies. Traditionally a generous dividend payer, GVC plans to return to a 50% payout policy, but strong cash generation means that we still expect net debt to fall from €145m at end 2016 to €95m at end 2017 and to be eliminated by end 2018.
Positive momentum confirmed: Q4 revenue up 12%
Q4 (to 12 December) net gaming revenue is up 12% (pro forma, including bwin), or 14% at constant currency, with sports up 19% and gaming up 8%, against a strong comparative. Current consensus is for 2016 revenue of €852-885m and clean EBITDA of €202-205.5m; we have increased our EBITDA to €204.5m (from €202.1m) but left 2017/18e unchanged at €250m and €285m respectively to allow for increasing gaming taxes as markets regulate.
Valuation: Good time to take another look
Today’s news re-confirms ongoing excellent progress. Sector sentiment has been adversely affected by UK government’s triennial review of stakes and prizes, but much of the focus appears to be on FOBT betting terminals and we do not expect it to have a material effect on GVC. With recent profit-taking having sent the shares down from a peak of 769p in September, the 2017e EV/EBITDA of only 9.2x versus a peer group average of 9.4x suggests that now is a very good time for investors to take another look at GVC, given its 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 |
|||||||
Net gaming revenue |
|
|
224.8 |
247.7 |
885.0 |
925.0 |
976.0 |
Cost of Sales |
(101.5) |
(112.4) |
(436.9) |
(474.9) |
(503.6) |
||
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) |
(5.0) |
0.0 |
||
Share based payments |
(0.7) |
(0.4) |
(15.0) |
0.0 |
0.0 |
||
Operating Profit |
42.9 |
27.7 |
(82.5) |
85.0 |
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) |
63.0 |
114.0 |
Tax |
(0.7) |
(0.8) |
4.0 |
(13.2) |
(18.7) |
||
Profit After Tax (norm) |
40.6 |
49.2 |
100.1 |
174.8 |
215.3 |
||
Profit After Tax (FRS 3) |
40.6 |
24.7 |
(140.7) |
49.8 |
95.3 |
||
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 |
32.1 |
54.3 |
66.9 |
EPS - (IFRS) (c) |
|
|
66.4 |
40.2 |
(48.2) |
17.1 |
31.4 |
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 |
29.0 |
||
Gross Margin (%) |
54.8 |
54.6 |
50.6 |
48.7 |
48.4 |
||
EBITDA Margin (%) |
21.9 |
21.8 |
23.1 |
27.0 |
29.2 |
||
Operating Margin (before GW and except.) (%) |
19.4 |
21.3 |
18.9 |
22.7 |
25.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
159.2 |
159.2 |
1,686.5 |
1,591.5 |
1,496.5 |
Intangible Assets |
154.3 |
155.2 |
1,660.0 |
1,560.0 |
1,460.0 |
||
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 |
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) |
(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 |
1,431.5 |
1,396.5 |
1,407.5 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
48.5 |
62.5 |
29.2 |
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) |
0.0 |
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) |
(134.8) |
50.0 |
95.9 |
||
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) |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
2.4 |
10.2 |
145.0 |
95.0 |
(1.0) |
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).
|
|