In a continuation of previous trends, GVC’s Q318 trading update has demonstrated strong growth and market share gains across all territories. Total net gaming revenues (NGR) were up 14%, driven by a 28% growth in online NGR. UK retail was only down 2%, helped by a strong FIFA World Cup. The integration of Ladbrokes is progressing well, although GVC has announced that Paul Bowtell (former Ladbrokes CFO) will resign in March 2019. Our estimates remain unchanged, but there is a £20-25m risk to our EBITDA forecasts, following an anticipated increase in remote gaming duty (RGD) at the government’s budget on 29 October. The stock has fallen 19% from recent highs and trades at 10.0x EV/EBITDA and 13.0x P/E for 2018e.
In line with our expectations, GVC produced a strong Q318 trading update, with total NGR up 14%. Online NGR growth of 28% was driven by a 31% increase in Sports Brands NGR (including a 43% growth from legacy GVC). Adjusting for the World Cup and the acquisition of CrystalBet, Online NGR was up 21%. European retail NGR grew 24%, boosted by Italy, and UK retail like-for-like NGR declined by only 2%, helped by a good second half of the World Cup. Year to date, group NGR has increased 10%, driven by a 21% growth in online NGR and a 28% growth in European retail NGR. Our estimates remain unchanged.
The government is expected to provide an update on its plans to increase RGD in the budget on 29 October 2018. We will reassess our estimates for the RGD tax once the budget has been announced. Our estimated impact for GVC is c £20–25m on EBITDA, starting in April 2019. We also expect clarity on the implementation date for the cut in B2 stakes to £2, with the enaction of the Triennial Review legislation anticipated this year. Currently our estimates include the impact from the Fixed Odds Betting Terminals cut in 2020.
The LCL acquisition has cemented GVC’s leading global position and the £130m+ cost savings are expected to contribute to significant EPS accretion. With net debt/EBITDA peaking at 2.6x in 2018, strong FCF should rapidly reduce leverage. The stock has fallen c 19% from its recent highs and trades at 10.0x EV/EBITDA and 13.0x P/E for FY18e, appropriately towards the top end of the peer group.