Following the resignation of Sports Minister Tracey Crouch, the UK government has bowed to pressure to bring forward the reduction in FOBT stake limits, from October 2019 to April 2019. The planned increase in remote gaming duty (from 15% to 21%) will also commence in April. We reduce our FY19 EBITDA by a further £95m and net debt/EBITDA now peaks at 3.0x in FY19. Our FY20 estimates are broadly unchanged.
Following the Budget announcement on 29 October and the resignation of Tracey Crouch, the government has brought forward the timing for the FOBT stake reduction. The move from £100 stake to £2 stake will now commence in April 2019 rather than October 2019. The increase in remote gaming duty (from 15% to 21%) will also happen at the same time. A positive by-product is that GVC will likely not be liable for a c £695m (£674m + interest) to former LCL shareholders (from the original M&A agreement), given that legislation will need to be enacted prior to the April implementation of the £2 stakes cut.
UK online revenues comprise c 20% of group revenues and we estimate that UK online gaming (not sports) comprise c £500m. The 6% increase in RGD will therefore have an annual impact of c £30m on group EBITDA. The additional six months in 2019 mean a further £15m reduction in EBITDA. Together with an additional £80m impact from the FOBT timing, we reduce 2019 EBITDA by £95m. Our FY20 P&L forecasts remain broadly unchanged, although we note that we now include share-based payments in our normalised EPS forecasts, to be consistent with consensus.
The LCL acquisition has cemented GVC’s leading global position and the £130m+ cost savings are expected to contribute to significant EPS accretion. Net debt to EBITDA now peaks at 3.0x in FY19, but strong FCF should rapidly reduce leverage. The stock has fallen c 30% since August on the back of the regulatory changes and trades at 10.3x EV/EBITDA and 15.0x P/E for FY19e, appropriately towards the top end of the peer group.
