Company Overview
GVC Holdings plc works as a public online betting and gaming company in the United Kingdom, Germany, rest of Europe, and internationally. The company currently operates in four division: Games labels, sports labels, B2B, and non-core segments. It offers trade sports betting and pari-mutuel betting items; online games and casino; fixed odds games betting; peer to peer games; including on the web bingo and poker, and B2B services. The company’s shares are traded at the London Stock Exchange and also a part of FTSE 100 and FTSE 250 benchmark index. It was established in the year 2004 and headquartered at Douglas, Isle of Man, the United Kingdom. GVC Holdings Plc holds licences in more than 20 countries.

Major Brands
Sports Labels: Bwin, Ladbrokes, Coral, Sportingbet, Betboo, Betdaq, Gamebookers, Crystalbet, Stadium, Sportium, Eurobet, Ladbrokes.com.au, and Ladbrokes.be.

Games Labels: Partypoker, PartyCasino, Gala Bingo, Gala Casino, Foxy Bingo, Foxy Casino, CasinoClub, Gioco Digitale, Cheeky Bingo, Casino Las Vegas, SCasino, and Casino King.

B2B: MGM Resorts International, Danske Spil, PMU, Fortuna, and AGT.

Others: InterTrader.

Key Statistics

 (Source: Financial Times) 
 
Key Management: Non-executive Chairman: Lee Feldman; Chief Executive Officer: Kenny Alexander; Chief Financial Officer: Rob Wood; andNon-executive Director: Jane Anscombe
 
Major Shareholders

 (Source: TR)
 
Financial Highlights (for FY 2018, in £m)

(Source: Annual Report, Company Website)

Financial Commentary
In 2018, reported net gaming revenue (NGR) surged by 265% to £2,979.5 million when compared with the last year data mainly due to the FanDuel acquisition in July 2018, although foreign currency translation had a negative impact on the performance. Proforma NGR was up by 9% to £3,571.4 million.The company reported revenue of £2,935.2 million for the year ending December 2018 as compared to £789.9 million in 2017 for the same period. There was an increase of 272 per cent in reported revenue of the company due to the strong performance in the European Retail and Online segment. In FY18, Proforma Revenue of £3,523.6 million accelerated by 8 per cent. The reported gross profit rose by 248 per cent to £2,004.2 million in FY 2018, from £575.3 million in FY 2017. This reflects policy growth in revenue. Proforma gross profit increased by 7 per cent to £2,404.4 million. Reported underlying EBITDA surged by 203% to £640.8m, due to the strong growth in the legacy GVC businesses and the impact in the Ladbrokes Coral brand post-acquisition. The proforma underlying EBITDA increased by 13 per cent. The reported underlying operating profit of £520.8 million, reflecting strong growth of 208 per cent over the prior year. Proforma underlying operating profit surged by 19 per cent to £610.1 million. For the year ended on 31st December,18, the company reported underlying profit before tax of £434.6 million, climb by 188% compared with the corresponding previous year. This reflects strong growth in the business and other smaller or larger acquisition. GVC loss after tax for FY18 stood at £56.4 million, compared with £34.9 million in FY17, mainly because of the non-cash amortization of acquired intangibles. Adjusted diluted Earnings Per Share of the group stood at 76.3 pence, up by 75% as compared with the previous year. During H1 FY18 company declared a dividend of 16 pence and a dividend of 32 pence, an increase of 7 per cent on the previous year. For FY18, adjusted net debt of £1,896 million, representing 2.5x net debt to proforma underlying EBITDA ratio.
 
Financial Ratios

(Source: TR)

Ratio Commentary
Gross margin for FY18 stood at 68.3%, 240 basis points above its peers median, and increased by 17.6% as compared to the FY17 gross margin of 50.7%. Asset turnover improved by 0.18 in FY18 at 0.64 against FY17 data. The company’s asset turnover ratio in FY18 equates with the industry median. The assets/equity ratio of the company has been increasing over the periods. However, it is less than the industry median, indicating the company's equity backs a lower value of assets. The company’s debt/equity ratio is significantly lesser than its competitors and in FY 18, the company had zero debt funding. The company’s A/R turnover is higher than its peers, though it increased in FY 2018. Similarly, the fixed asset turnover is more than the industry median.
 
Share Price Performance

Daily price chart as on March-07-2019, before market close (Source: TR)

On March 07, 2019, shares of GVC Holdings Plc were trading at GBX 706.5 (before market close), down by 1.464 per cent against its previous day closing price. Stock’s 52 weeks High and Low is GBX 1,184/GBX 606. At the time of writing, shares were trading 39.44 per cent lower than its 52w High and 18.32 per cent higher than its 52w low. GVC Holdings Plc share price increased significantly by 5.13 per cent in the last three months (as at March 7, 2019), and in the last one year, the stock has delivered negative 17.82 per cent returns. Stock’s average traded volume for 5 days was 5,400,551.40; 30 days - 4,179,830.53 and 90 days - 3,251,676.68. The average traded volume for 5 days was up by 29.21 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.54, reflecting lower volatility as compared to the benchmark index. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 9.8x as compared to the industry median of 13.3x. Total outstanding market capitalisation was around £4.17 billion and a dividend yield of 4.59 per cent.

Recent News
On 27^th February 2019, the company has announced an agreement with Playtech group that will cover all the new commercial relationship between these two companies. This agreement would run till 2025. From this agreement, the company will increase the flexibility in Ladbrokes Coral to the company’s housing technology platform. On 18^th December 2018, both the House of Lords and House of Commons has approved a law cutting B2 gaming machine maximum staking levels. On 18^th October 2018, the company appointed Rob Wood as a CFO and Director.

Major Risks
The UK's exit from the EU is not expected to impact on the number of employees materially and therefore is less likely to influence the group's performance directly. However, any sustained economic downturn that may follow Brexit could increase the risk to the strategic plans and reduce the Group's income from investments.

Valuation Methodology

Method 1:  EV/EBITDA Multiple Approach (NTM) (EBITDA (FY19E approx.))


To compare GVC Holdings PLC with its peers, EV/EBITDA value has been used. The peers are Paddy Power Betfair PLC (NTM EV/EBITDA was 12.13x), William Hill PLC (NTM EV/EBITDA was 7.18x), Merlin Entertainments PLC (NTM EV/EBITDA was 9.38x) and Cineworld Group PLC (NTM EV/EBITDA was 8.06x). The median of EV/EBITDA (NTM) of the company’s peers was 9.5x.

Method 2: Price/Earnings Multiple Approach (NTM)


* All forecasted figures and peers have been taken from Thomson Reuters.

Conclusion
The company has shown an increase in revenue, with the acquisition of Ladbrokes Coral Group PLC, the market leader in online wagering and gaming in the United Kingdom market. Based on strong fundamental performance and the valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 717, as at March-06-2019 with single-digit upside potential based on 13.91x NTM Price/Earnings on FY19E earnings per share and 9.5x NTM EV/EBITDA on FY19E EBITDA.

*The buy recommendation is valid for the current price as covered in the report as on (7th March 2019).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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