GVC Holdings — Update 19 December 2016

GVC Holdings — Update 19 December 2016

GVC Holdings

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GVC Holdings

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Disposal

Travel & leisure

19 December 2016

Price

648.5p

Market cap

£1,897m

€1.19/$1.25/£

Net debt (€m) at 24 July 2016

154

Shares in issue

292.5m

Free float

94%

Code

GVC

Primary exchange

LSE (Premium segment)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.7

(9.8)

47.1

Rel (local)

(1.7)

(13)

29.5

52-week high/low

769.0p

415.0p

Business description

GVC Holdings is a leading e-gaming operator in both B2C and B2B markets with four main product verticals (sports, casino, poker, bingo). Around 55% of revenues come from regulated and/or taxed markets. GVC acquired bwin.party digital entertainment (bwin) on 1 February 2016 for €1.51bn.

Next events

Final results

March 2017

Analysts

Jane Anscombe

+44 (0)20 3077 5740

Katherine Thompson

+44 (0)20 3077 5730

GVC Holdings is a research client of Edison Investment Research Limited

GVC has announced the sale of its payments business Kalixa for €29m, as expected. In addition, and hard on the heels of the increased special dividend for shareholders (announced 15 December), GVC has reported that directors are to receive cash alternative payments in respect of options that have vested. The combined impact is a small (2%) upgrade to our 2017e normalised EPS. GVC goes into 2017 with very strong positive momentum that is still not reflected its EV/EBITDA of 9.6x.

Year
end

Revenue (€m)

EBITDA*
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

224.8

49.2

41.3

61.4

55.5

12.6

7.2

12/15

247.7

54.1

50.0

76.4

56.0

10.1

7.2

12/16p**

885.0

204.5

105.3

32.1

14.9

24.0

1.9

12/17e

909.0

250.0

188.0

55.4

26.0

13.9

3.4

12/18e

960.0

285.0

234.0

68.2

33.5

11.3

4.3

Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma includes 12 months of bwin.

Sale of Kalixa Group

The Kalixa payment processing business was non-core within bwin and its sale to Senjō Group Pte of Singapore for €29m (total up to €35.5m) is good news. Kalixa joins a large payments specialist and will continue to service GVC under an existing contract. Kalixa lost €7.0m in 2015 and we forecast break-even in 2017 so there is no effect on our profit forecasts. We have adjusted 2017e revenue by €16m. The deal will complete in 2017 with the final net cash proceeds depending on completion account adjustments.

Share options: Cash alternative

GVC has always placed considerable emphasis on the importance of incentive programmes for both management and staff. The CEO/CFO remuneration packages put in place at the time of the bwin acquisition did not provide for any bonus or any salary increase; instead they participated in a new 2015 LTIP. Now, with the chairman, they are entitled to receive 3.7m options between them at prices of £4.22 and £4.67, worth a total of £8.97m (€10.67m). To cover the cost of the options and tax they would have needed to sell c 80%. There is no effect on 2016 forecast normalised PBT or EPS since we do not include share based payments in our normalised calculations and the interest impact is minimal. There is a small (2%) positive impact on our 2017 normalised EPS (now 55.4c, up from 54.3c), due to the lower diluted share capital. The directors’ shareholdings are unchanged and continued to represent a sizeable part of their personal wealth (1.9m shares or £12m in the case of the CEO Kenny Alexander).

Valuation: 2017 EV/EBITDA still only 9.6x

GVC’s shares bounced a little on last week’s trading update and dividend news (Edison update, 15 December) but the 2017e EV/EBITDA is still only 9.6x, which we believe is excellent value given GVC’s 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

Revenue

 

 

224.8

247.7

885.0

909.0

960.0

Cost of Sales

(101.5)

(112.4)

(436.9)

(459.0)

(487.6)

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)

(9.0)

0.0

Share based payments

(0.7)

(0.4)

(15.0)

0.0

0.0

Operating Profit

42.9

27.7

(82.5)

81.0

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)

59.0

114.0

Tax

(0.7)

(0.8)

4.0

(15.0)

(21.1)

Profit After Tax (norm)

40.6

49.2

100.1

172.9

213.0

Profit After Tax (FRS 3)

40.6

24.7

(140.7)

43.9

93.0

Average Number of Shares Outstanding (m)

61.1

61.3

292.0

292.5

303.0

EPS - normalised fully diluted (c)

 

 

61.4

76.4

32.1

55.4

68.2

EPS - (IFRS) (c)

 

 

66.4

40.2

(48.2)

15.0

30.7

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

25.3

Gross Margin (%)

54.8

54.6

50.6

49.5

49.2

EBITDA Margin (%)

21.9

21.8

23.1

27.5

29.7

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

19.4

21.3

18.9

23.1

25.5

BALANCE SHEET

Fixed Assets

 

 

159.2

159.2

1,686.5

1,572.5

1,477.5

Intangible Assets

154.3

155.2

1,660.0

1,541.0

1,441.0

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

530.0

425.0

426.0

Stocks

0.0

3.8

0.0

0.0

0.0

Debtors

31.7

40.6

140.0

140.0

160.0

Cash

4.8

13.4

280.0

165.0

136.0

Customer balances

13.0

14.8

110.0

120.0

130.0

Current Liabilities

 

 

(50.4)

(81.0)

(320.0)

(440.0)

(385.0)

Creditors

(46.4)

(77.3)

(290.0)

(290.0)

(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

1,426.5

1,387.5

1,398.5

CASH FLOW

Operating Cash Flow

 

 

48.5

62.5

24.2

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)

15.0

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)

(139.8)

65.0

96.0

Opening net debt/(cash)

 

 

4.3

2.4

10.2

150.0

85.0

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

150.0

85.0

(11.0)

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). ** 2017 disposals is assumed net proceeds from the Kalixa sale: €29.0m agreed cash consideration is subject to completion account adjustments and as a payment processor these may be material; consideration is capped at €35.5m. There will also be a dividend for GVC before completion (free cash flow over and above €2.1m). We have conservatively assumed that the final cash impact of the disposal (net of expenses) is c €15m.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GVC Holdings and 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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”) © FTSE 2016. “FTSE®” 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. . The research analyst primarily responsible for the preparation of this report personally holds an equity position in the company of less than 1%.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GVC Holdings and 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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”) © FTSE 2016. “FTSE®” 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. . The research analyst primarily responsible for the preparation of this report personally holds an equity position in the company of less than 1%.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Liquefied Natural Gas — Update 19 December 2016

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