GVC has announced a strong set of H118 results, with pro-forma net gaming revenues (NGR) increasing 8% to £1,717m, driven by an impressive 18% growth in Online. The integration of Ladbrokes Coral is on track, with an additional £30m capex synergies identified. GVC is now a leading player in the global gaming market and is well placed to continue gaining share across all its key territories. M&A are likely to remain a feature and there is significant potential upside from the US, which is not in our estimates. The stock trades appropriately towards the top of its peer group, at 10.3x EV/EBITDA and 13.5x P/E for 2018e.
Amidst a complex integration, GVC produced an impressive pro-forma H118 NGR growth of 8% to £1,717m, driven by an 18% increase in Online and 29% growth in European Retail. As expected, UK Retail NGR declined by 5% to £665m. Altogether, the FIFA World Cup contributed £35m of NGR in H118 (pre-substitution) and £64m for the whole tournament. Current trading into Q3 is strong, with group NGR up 14% and Online up 30% (18–19% excluding World Cup/ margin benefits). Our headline revenue and EBITDA forecasts remain broadly unchanged, although we have lowered our EPS estimates due to higher forecast depreciation. On the back of a 16p interim dividend, our 2018e dividend forecast goes from 30p to 32p.
Following the repeal of PAPSA in May 2018, GVC announced a $200m JV with MGM to provide sports betting and online gaming in the US. With access to 15 states, we believe this JV stands GVC in very good stead to benefit from what is likely to be the largest regulated gaming market globally (c $9bn gross gaming revenues, Global Market Advisors). Given the early stage of the regulatory environment and the limited visibility, US revenues are not included in our forecasts, but we believe the upside potential could be significant. In addition, GVC is likely to pursue acquisitions (eg Crystalbet) in high-growth regulated markets.
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 drive down leverage. The group trades at 10.3x EV/EBITDA and 13.5x P/E for FY18e, appropriately towards the top end of the peer group.