GVC Holdings Plc - Well Positioned for Further Growth

GVC Holdings Plc (LON: GVC) is an Isle of Man-incorporated Sports-betting and Gaming Group. The Company owns some of the leading brands in the gaming industry and is one of the largest sports betting and gaming groups in the world.
On 8 October 2020, the Company will release the third-quarter trading update.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 13 August 2020, the Company provided an interim result for the six months ended 30 June 2020. In the first half of 2020, the total Group net gaming revenue (NGR) decreased by 11% (down 10% on a constant currency basis) year-on-year to £1,616.7 million, driven by a decrease in UK Retail (down 50% on a like-for-like basis), European Retail (down 48%) and all other segments. The decrease in NGR was mainly driven by the closure of European outlets in Q2 FY20 and government-imposed closure of retail estate in Q2 FY20. Online NGR increased by 19% year-on-year (21% ahead on a constant currency basis), with continued double-digit NGR growth in all major territories. In H1 FY20, the underlying EBITDA was 5% lower at £348.6 million (H1 FY19: £366.8 million). However, the online EBITDA increased by 53% year-on-year to £368.6 million, reflecting favourable sports margins, a robust performance in gaming and lower marketing spend (due to sport cancellations). Moreover, the profit after tax stood at £2.1 million and remained the same from the same period last year. The Group has shown a strong cost and cash management, with net debt at 30 June 2020 of £2,164.9 million, net cashflow of £80.5 million in H1 FY20 and £535 million of new revolving credit facility.

Share Price Performance

 
1-Year Chart as of 17 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

GVC Holdings Plc’s shares were closed at GBX 766.40 on 17 August 2020, down by 0.44% against the last day closing price. Stock 52 week High and Low were GBX 956.80 and GBX 292.70, respectively.

From the technical standpoint, shares were trading slightly above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

Regulatory, fiscal and legislative regimes for betting and gaming in key markets around the world can change, sometimes at short notice. Such changes can have an adverse impact on the Group’s profitability, and additional costs might be incurred in order to comply with any new laws or regulations in multiple jurisdictions. The loss of personal customer data imposed the risk of prosecution.The uncertainty about macroeconomic factors and change in consumer disposable income might impact the share of income which consumers would spend over leisure activities.

Valuation Methodology



Conclusion

The Company has delivered a strong performance in Online business, with the re-opening of the retail operations and the return of the sporting calendar. In the financial year 2020, the Group expects the underlying EBITDA to be in the range of £720-£740 million, supported by the acceleration of £20 million of synergies from the acquisition of Ladbrokes Coral. Despite lower levels of underlying EBITDA (driven by COVID-19 impacts), the Group’s net debt will be reduced by year-end. The Board has taken the decision not to pay an interim dividend, and it will consider dividend payments with future results. Overall results showed that the Group has a strong foundation and is looking forward to international expansion through organic and non-organic growth.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on GVC Holdings at the closing market price of GBX 766.40 (as on 17 August 2020) and will recommend fresh buying at the right time.

Renishaw Plc – Significant Decrease in Annual Profit Due to Challenging Global Macroeconomic Conditions

United Kingdom-based Renishaw Plc (LON: RSW) is among the world’s prominent engineering and technology Group which is specialising in precision and healthcare measurement.

On 30 September 2020, the Company will hold the Annual General Meeting.

Financial Highlights (FY2020)


(Source: Company Website)

On 13 August 2020, the Company provided a preliminary result for the year ended 30 June 2020. For the year ended 30 June 2020, the revenue decreased by 11% year-on-year to £510.2 million (FY19: £574.0 million), against a backdrop of challenging economic conditions including the ongoing uncertainty caused by the trade tensions between the USA and China, the COVID-19 pandemic and weaker demand in the machine tool sector. Also, the revenue was lower in all regions. The adjusted profit before tax for FY20 decreased by 53% year-on-year to £48.6 million (FY19: £103.9 million). The Group witnessed a strong balance sheet, with net cash and bank deposits of £120.4 million at 30 June 2020 (30 June 2019: £106.8 million). The Company has taken action to protect the long-term health of the business by preserving cash, reducing the Group's cost base and improving productivity.

Share Price Performance

 
1-Year Chart as of 17 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Renishaw Ltd’s shares were closed at GBX 4,914 on 17 August 2020, up by 2.63% against the last day closing price. Stock 52 week High and Low were GBX 5,345.00 and GBX 2,234.51, respectively.

From the technical standpoint, 90-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

The Company is exposed to the cyclical nature of demand from the automotive, aerospace and consumer electronics industries, which may be more severe if the downcycles of these key industries coincide.The geopolitical changes and recession in the economy could hamper the Company’s operations and will affect the financial performance and operational stability of the Company. The profitability of the Company will also be affected by ongoing trade tensions between the Chinese government and the US government.

Conclusion

Despite the challenging environment, the Group is in a decent financial position. Given the uncertain macroeconomic backdrop, including the risks posed by reduced freedom of global trade and the COVID-19 pandemic, the Group expects challenging market conditions, particularly in the aerospace and automotive sectors.The Group’s earnings per share declined by 100% year-on-year in the financial year 2020.

The Company’s P/E, P/CF, and EV/EBITDA multiple are significantly higher as compared to the industry multiple, reflecting overstretched valuations.Moreover, the Company’s share price is trading near a 52-week high, which raises doubt over upside potential.
Based on the above rationale, we have given an “AVOID" stance onRenishaw at the closing market price of GBX 4,914 (as on 17 August 2020).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.