GVC Holdings — A gaming powerhouse

GVC Holdings — A gaming powerhouse

GVC’s proposed acquisition of Ladbrokes Coral (LCL) will create a leading global multi-brand gaming business, with revenues of c £3.3bn. Completion is expected in late Q1/early Q218. 90% of the enlarged group’s revenues will be derived from locally regulated and/or taxed markets. As witnessed by the successful integration of bwin, GVC is well positioned to deliver material synergies and, regardless of the outcome of the triennial review, the company expects double-digit EPS accretion after the first year. GVC has reported consistently impressive results throughout 2017 and its shares trade appropriately towards the top end of the peer group, at 12.8x EV/EBITDA and 16.4x P/E for 2018e. We introduce new forecasts to reflect the disposal of the Turkish business.

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GVC Holdings

A gaming powerhouse

Update post Turkish disposal

Travel & leisure

2 January 2018

Price

930p

Market cap

£2,824m

£1: €1.126

Net debt (€m) at 30 June 2017

149

Shares in issue

303.7m

Free float

95%

Code

GVC

Primary exchange

LSE

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

1.1

10.1

43.3

Rel (local)

(1.0)

5.9

31.8

52-week high/low

951.00p

594.00p

Business description

GVC Holdings is a leading e-gaming operator in both B2C and B2B markets with four main product verticals (sports, casino, poker and bingo). GVC acquired bwin.party digital entertainment (bwin) in February 2016 for €1.51bn.

Next events

Triennial review consultation

January 2018

Analysts

Victoria Pease

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

GVC’s proposed acquisition of Ladbrokes Coral (LCL) will create a leading global multi-brand gaming business, with revenues of c £3.3bn. Completion is expected in late Q1/early Q218. 90% of the enlarged group’s revenues will be derived from locally regulated and/or taxed markets. As witnessed by the successful integration of bwin, GVC is well positioned to deliver material synergies and, regardless of the outcome of the triennial review, the company expects double-digit EPS accretion after the first year. GVC has reported consistently impressive results throughout 2017 and its shares trade appropriately towards the top end of the peer group, at 12.8x EV/EBITDA and 16.4x P/E for 2018e. We introduce new forecasts to reflect the disposal of the Turkish business.

Year
end

Revenue (€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16p**

894.6

205.7

121.2

41.5

30.0

25.2

2.9

12/17e

975.0

268.5

220.5

63.0

33.0

16.6

3.2

12/18e

965.0

269.5

226.5

63.7

36.0

16.4

3.4

12/19e

1,022.9

290.3

247.3

68.5

39.0

15.3

3.7

Note: *Normalised and diluted (EPS) excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma results include bwin.party as if it were included from 1 January 2016.

Material synergies from potential LCL acquisition

The proposed acquisition values LCL’s equity at £3.2-4.0bn, depending on the outcome of the triennial review consultation (FOBT stake limits range from £2-£50/spin). GVC expects to hold 53.5% of the enlarged share capital, with Kenny Alexander as group CEO. The combined business will boast a diversified, global, multi-brand gaming portfolio, equating to revenues of c £3.3bn and EBITDA of c £680m in 2017. Irrespective of the FOBT outcome, GVC anticipates annual cost synergies of £100m+ by 2021. After the first full year of consolidation it also expects double-digit EPS accretion, with less than 3.0x net debt/EBITDA.

Adjusting GVC forecasts for Turkish disposal

GVC has now completed the disposal of its Turkish business and has waived its rights to any earnout (up to €150m in cash). We believe Turkey accounts for c €95m revenues and €35m EBITDA in 2017. Following the disposal, revenues from regulated and/or taxed markets increase from 69% to 75%. GVC reported a strong trading update in October and our standalone forecasts indicate €975m net gaming revenue (NGR) in 2017 and €965m in 2018 (which equates to 9.6% underlying growth), with an EBITDA margin of 27.5% and 27.9% respectively. GVC is highly cash generative (reaching standalone net cash in 2019) and we would anticipate rapid deleverage following the impact of the LCL deal.

Valuation: Quality reflected in share price rise

GVC’s shares have risen over 50% in 2017, driven by strong organic growth, as well as the successful integration of the bwin business. The proposed acquisition of LCL represents a unique opportunity to cement GVC’s leading global position and we anticipate significant EPS accretion going forward. As a standalone entity, GVC trades appropriately towards the top end of its peer group, at 12.8x EV/EBITDA and 16.4x P/E for 2018e.

Exhibit 1: Financial summary (not adjusted for potential LCL acquisition)

€m

2014

2015

2016*

2017e

2018e

2019e

Year end 31 December

(IFRS)

(IFRS)

(IFRS)

(IFRS)

(IFRS)

(IFRS)

PROFIT & LOSS

Revenue

 

 

224.8

247.7

894.6

975.0

965.0

1,022.9

Cost of Sales

(101.5)

(112.4)

(430.6)

(501.5)

(506.5)

(544.6)

Gross Profit (contribution)

123.3

135.4

464.0

473.5

458.5

478.3

EBITDA

 

 

49.2

54.1

205.7

268.5

269.5

290.3

Depreciation and amortisation

 

 

(5.5)

(1.4)

(27.0)

(33.0)

(33.0)

(33.0)

Operating Profit (norm)

 

 

43.7

52.7

178.7

235.5

236.5

257.3

Amortisation of acquired intangibles

0.0

0.0

(109.5)

(120.0)

(120.0)

(102.0)

Exceptional/ one-off items

0.0

(24.5)

(104.4)

(30.0)

0.0

0.0

Share based payments

(0.7)

(0.4)

(31.1)

(15.0)

(10.0)

(10.0)

Operating Profit

42.9

27.7

(66.3)

70.5

106.5

145.3

Net finance charges (interest plus fees)

(0.1)

(2.2)

(60.8)

(15.0)

(10.0)

(10.0)

Other financial expense/ associates

(1.6)

0.0

3.3

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

41.3

50.0

121.2

220.5

226.5

247.3

Profit Before Tax (FRS 3)

 

 

41.3

25.5

(123.8)

55.5

96.5

135.3

Tax

(0.7)

(0.8)

0.0

(22.1)

(22.6)

(24.7)

Profit After Tax (norm)

40.6

49.2

116.0

198.5

203.8

222.6

Profit After Tax (FRS 3)

40.6

24.7

(123.8)

33.5

73.8

110.6

Average Number of Shares Outstanding (m)

61.1

61.3

271.8

300.0

310.0

315.0

EPS - normalised fully diluted (c)

 

 

61.4

76.4

41.5

63.0

63.7

68.5

EPS - (IFRS) (c)

 

 

66.4

40.2

(45.5)

11.2

23.8

35.1

Dividend per share declared (c)

55.5

56.0

30.0

33.0

36.0

39.0

Dividend per share paid (c)

 

 

55.0

56.0

0.0

43.2

34.2

37.2

Gross Margin (%)

54.8

54.6

51.9

48.6

47.5

46.8

EBITDA Margin** (%)

21.9

21.8

23.0

27.5

27.9

28.4

Operating Margin (before GW and except.) (%)

19.4

21.3

20.0

24.2

24.5

25.2

BALANCE SHEET

Fixed Assets

 

 

159.2

159.2

1,637.7

1,500.0

1,382.0

1,282.0

Intangible Assets

154.3

155.2

1,609.4

1,471.4

1,353.4

1,253.4

Tangible Assets

1.1

1.4

19.7

20.0

20.0

20.0

Deferred tax asset

3.8

2.6

8.6

8.6

8.6

8.6

Current Assets

 

 

49.5

72.6

478.0

430.6

528.4

626.8

Stocks

0.0

3.8

0.0

0.0

0.0

0.0

Debtors

31.7

40.6

123.2

130.0

140.0

145.0

Cash

4.8

13.4

242.8

180.6

258.4

341.8

Customer balances

13.0

14.8

112.0

120.0

130.0

140.0

Current Liabilities

 

 

(50.4)

(81.0)

(641.5)

(242.0)

(260.0)

(270.0)

Creditors

(46.4)

(77.3)

(238.0)

(240.0)

(260.0)

(270.0)

Short term borrowings

(4.1)

(3.7)

(403.5)

(2.0)

0.0

0.0

Long Term Liabilities

 

 

(8.8)

(22.6)

(76.9)

(370.0)

(370.0)

(370.0)

Long term borrowings

(3.1)

(19.8)

0.0

(300.0)

(300.0)

(300.0)

Other long term liabilities

(5.7)

(2.8)

(76.9)

(70.0)

(70.0)

(70.0)

Net Assets

 

 

149.5

128.1

1,397.3

1,318.6

1,280.4

1,268.8

CASH FLOW

Operating Cash Flow

 

 

48.5

62.5

34.0

210.5

253.5

270.3

Tax

(0.5)

(0.7)

(7.9)

(16.0)

(22.6)

(24.7)

Net Interest

(0.1)

0.0

(47.7)

(15.0)

(10.0)

(10.0)

Capex

(5.3)

(6.2)

(34.8)

(35.0)

(35.0)

(35.0)

Acquisitions/disposals

(8.0)

(2.4)

(1,491.5)

0.0

0.0

0.0

Financing

0.9

(24.5)

1,426.6

(3.5)

0.0

0.0

Dividends

(33.6)

(34.3)

0.0

(130.9)

(106.0)

(117.2)

Net Cash Flow

1.9

(5.6)

(121.3)

10.1

79.8

83.4

Opening net debt/(cash)

 

 

4.3

2.4

10.2

131.5

121.4

41.6

HP finance leases initiated

(0.6)

(1.5)

0.0

0.0

0.0

0.0

FX/ Other

0.7

(0.7)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

2.4

10.2

131.5

121.4

41.6

(41.8)

Source: Company accounts, Edison Investment Research. Note. *2016 are pro forma as if bwin were included from 1 January 2016. **EBITDA margin on NGR.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2017]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Abzena — Starting to get back on track

In its interim results for the year-ending March 2018, Abzena started to move out from under the shadow of September’s disappointing trading update. Investors should be relieved that Abzena continues to demonstrate a growing service business even against the backdrop of an investment programme aimed at increasing capacity. Group revenues were up 7.6% year-on-year for the first half, while the Abzena Inside portfolio continues to expand and products within it advance.

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