Online gambling company GVC (GVC) has delivered earnings before interest, taxes, depreciation and amortisation (EBITDA) of £755.3m for the year to December, at the top end of its range of guidance.
GVC enjoyed strong growth in online revenues over the period as it gained market share in all territories with NGR rising 21%, helped by the football World Cup and effective marketing.
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This success has continued into the current financial year with group net gaming revenue (NGR) up 11% and online NGR up 22% between 1 January and 24 February.
Shares in GVC gain 2.9% to 670p although price is still 22% below the levels of a year ago as regulatory concerns weigh on sentiment.
DEBT SET TO RISE AS UK REGULATION TIGHTENS
UK retail NGR fell 3% in 2018 as fewer people made wagers in-store, which chief executive officer Kenny Alexander admits is symptomatic of the ‘terminal decline’ in the UK over the last few years.
Unfortunately, UK betting shops are likely to remain under pressure following the triennial review last year.
One of the biggest regulatory changes is a cut in the maximum stake on a single bet on fixed-odds betting terminals from £100 to £2, effective from April 2019, which GVC believes will lead to up to 1,000 betting shops closing.
GVC says it is confident of absorbing the impact of the review and any tax increases this year, although one fly in the ointment is that debt will rise from 2.8 times to three times EBITDA this year.
Despite extensive store closures, Kenny is optimistic that GVC will maintain its high street presence with around 2,500 shops set to remain open.
He is also confident the firm's new Equinox machines will help offset the cut in stakes as they focus less on roulette - which is heavily affected by the changes - and more on slot-based games.
Looking overseas, there is little news on GVC’s joint venture with MGM Resorts to create a sports betting and online gaming platform in the US but it is early days as the deal was announced in July.
WHAT DO THE ANALYSTS SAY?
Peel Hunt analyst Ivor Jones says 2019 will be a key transition year for GVC, flagging that a fall in profitability will likely be offset by synergies from its Ladbrokes Coral acquisition.
He is encouraged by the firm's progress in integrating Ladbrokes and speculates that GVC’s new deal with Playtech (PTEC) will likely bring planned synergies forward by a year to 2020.
Berenberg analyst Roberta Ciaccia is pleased GVC continues to report ‘excellent operational trends’ and believes online growth is the company’s jewel in the crown for future growth.
