Online gambling company GVC (GVC) has started life on London’s Main Market on a high, with the shares surging 8.8% to 508p.

The former AIM market small-cap stock has completed its acquisition of rival Bwin.Party, becoming the world’s fifth-largest online gambling company with a market cap of £1.5 billion.

GVC is expected to grow its pre-tax profit by 78% to €82.9 million in 2016 and by another 121% to €183.4 million the year after. Despite this, its price to earnings ratio of 10.1 is significantly lower than its gaming sector peer group’s average of 18.3.

GVC HOLDINGS - Comparison Line Chart (Rebased to first)

‘We view this discount as unwarranted given the group’s proprietary technology, geographic diversity and high visibility on earnings driven by €110 million synergy delivery combined with robust underlying revenue growth,’ says Cenkos analyst Simon French.

GVC is taking a dividend holiday in 2016 but is expected to resume dividend payments within 12 months.

This would result in a yield of at least 4.7% in 2017 rising to 6.3% in 2018, assuming a 50% payout ratio in line with its peers. If the group resumes dividends under its former dividend policy, i.e. 75% of clean net operating cash flow, the 2017 yield would be 7.7%.

Cenkos’ target price is 892p, implying 75.6% upside.

Some analysts had suggested GVC would qualify for a FTSE 250 listing because of its size, but the group has gone for a Standard listing rather than a Premium listing. We understand that under London Stock Exchange rules a company needs a Premium listing in order to be included in the FTSE 250.

Issue Date: 02 Feb 2016