GVC Holdings PLC

GVC Holdings PLC (GVC) is an Isle of Man-incorporated sports-betting and gaming groups. 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. The company’s operations are differentiated in five operating segments, namely Online, UK Retail, European Retail, Other and Corporate.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Reports, Company Website)

In H1 FY19, the company’s net gaming revenue surged by 61 per cent to £1,810.6 millionas compared with the corresponding period of the last year. Revenue surged by 61 per cent to £1,782.1 million against the £1,105.9 million in H1 FY18. Underlying EBITDAR rose by 42 per cent to £376.8 million against the same period in 2018. Underlying EBITDA increased by 56 per cent to £366.8 million as compared to £235 million in H1 FY18. The revenue, underlying EBITDAR, and underlying EBITDA accelerated because of the effect of IFRS 16 and comprising 3 months of trading for the Ladbrokes Coral business post-acquisition.

On a reported basis, the company’s underlying profit before tax stood at £212.1 millionand after charging £224.4 million of separately disclosed items, profit after tax stood at £2.1 million. Diluted loss per share was 0.6 pence. Continuing adjusted diluted EPS declined by 3 per cent to 31.3 pence. The company would pay an interim dividend per share of 17.6 pence, an increase of 10 per cent against the same period in 2018.
On Proforma basis, NGR increased by 5 per cent and revenue surged by 5 per cent,due to the robust performance in Online and European Retail. Underlying EBITDA of pre-IFRS 16 decreased by 7 per cent to £323.4 million but 11 per cent ahead after adjusting for the projected impact of the additional Online taxes and Triennial Review.

Share Price Performance
 
Daily Chart as at August-16-19, before the market closed (Source: Thomson Reuters)

On 16th August 2019, at the time of writing (before the market close, GMT 9:30 AM), GVC Holdings PLC shares were trading at GBX 554.40 and an increased by 1.69% against the previous day closing price. Stock's 52 weeks High and Low is GBX 1,151/GBX 504. The company’s stock beta was 0.59, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology

Peers: FirstGroup PLC, Playtech PLC, Cineworld Group PLC, Flutter Entertainment PLC, 888 Holdings PLC, J D Wetherspoon PLC, and Compass Group PLC

Conclusion
During the H1 FY19, and into 2020, the migration of the Ladbrokes Coral United Kingdom digital businesses onto the company technology platform will further increase ‘best-of-both’ best-practice for the company. The company’s performance of the online division remains very robust due to an operating model that is supported by cutting-edge marketing techniques, and leading proprietary technology. In the longer term, the business is well-placed to deliver double-digit net gaming revenue growth.

The company said that earnings from its retail business would be £10 million better than the forecast.The closure of 900 shops would be a challenge for the business. The company applies central marketing expertise alongside local operational execution and leverages its proprietary technology and product development capability, which is highly flexible and enables it to release new features and products quickly and make rapid changes to the customer experience. This model is proving highly effective at minimal incremental cost, the company has the capacity to manage significant increases in volume. The opportunities provided by the integration and migration of Ladbrokes Coral and the joint venture in the US with MGM Resorts onto the GVC technology will bring these benefits to the broader group by helping to execute the operational delivery and grow the business.

The company has put up sufficient security arrangements and systems to be prepared for potential risks. Moreover, the company is well positioned to capture the growth in the betting industry, and the board is confident of delivering strong EBITDA growth in future years.

Therefore, based on the long-term profitability prospects and valuation done using the above methodology, we have given a "Hold" recommendation on the stock, at the closing price of GBX 545.20 (as on August 15, 2019), based on the 7.70x NTM Peers Average Price-to-Cash Flow-based valuation  (approx.) on the FY19E cash flow per share (approx.).
 

Solo Oil PLC

Solo Oil PLC (SOLO) is a United Kingdom-based oil and gas investment company. The company makes direct and indirect investments in development, exploration, and producing oil and natural gas properties. The group invests in offshore and onshore properties in the Americas, Europe and Africa.

Operational Update
The company announced about the Tanzania operational update on 16-Aug-19. Over the Kiliwani North Development Licence, the company’s reprocessing of the select 2D seismic lines acreage was finished with minor re-iterations requested from the processor. From the reprocessing, the data will help the design of a 3D seismic remapping and survey of the licence will occur once the final data is received. On Kiliwani North-1, the company continues to source equipment to perform the remedial and re-entry work.

On 29 July 2019,the company announced that the longstop date for accomplishment of the Ruvuma Farm-Out to ARA Petroleum Tanzania Limited was stretched to 31^st October 2019.

Financial Highlights (FY2018, £’000)

(Source: Annual Report, Company Website)

In the financial year 2018, the company’s revenue from contracts with customers was nil as compared with the previous year data. Gross profit increased to £1,777 thousandagainst the £614 thousand in FY17. Operating loss stood at £378 thousand, a decrease from the prior year data. Loss before taxation rose to £1,667 thousandas compared to a loss of £1,659 thousand in FY17. Basic and diluted loss per share stood at 0.33 pence, a decrease of 0.10 pence against the 0.43 pence in FY17.

Total assets surged from £19,027 thousand in FY17 to £23,454 thousand in FY18. Cash and cash equivalents stood at £2,999 thousand, an increase from the previous year data. During the period, the company issued £5.6 million in new equity.

Share Price Performance

Daily Chart as at 16^th August 2019, before the market closed (Source: Thomson Reuters)

On 16th August 2019, at the time of writing (before the market close, GMT 10:59 AM) Solo Oil PLC shares were hovering at GBX 1.2750 and decreased by 10.526% as compared with the previous day closing price. Stock's 52 weeks High is GBX 2.80, and 52-weeks Low is GBX 1.20.

Conclusion
The company’s revenue from contracts with customers for the financial year 2018 remained nil. The profitability margins have remained stagnant or declined. The financials of the group are substantially dependent on prevailing prices of oil and gas, which are out of the control of the group and are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and gas. The company operates in a challenging environment which requires continuous investments, sometimes at the cost of profitability, to stay ahead of the competition.

Based on the above factors, we recommend investors to “Avoid” taking fresh positions at the closing price of GBX 1.425 as on 15^th August 2019.
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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