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StockBeat: Buoyant GVC Puts Itself in the Shop Window

Stock MarketsOct 08, 2020 05:44AM ET
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By Geoffrey Smith -- Gambling has been one of the surprise winners of the pandemic, and the latest update from GVC (LON:GVC), the owner of U.K. bookmakers Ladbrokes (LON:LCL) and Coral, suggests that it’s set to carry on that way.

GVC stock rose 4.0% to a new two-year high on Thursday, after delivering a thumping upgrade to its underlying profit forecast for the year. It now sees earnings before interest, taxes and amortization in a range around 780 million pounds ($1.00 billion) this year, up from around 730 million after its first-half results.

Overall net gaming revenue was up 14% from a year earlier in constant currencies in the third quarter, while its online business grew twice as fast. The company boasted “market share gains in all major territories and the nineteenth consecutive quarter of double-digit growth.”

The figures are a fine illustration of how the pandemic has accelerated a shift away from physical venues to virtual ones. Being locked out of a betting shop closed due to Covid is no obstacle to anyone with a gambling itch to scratch. As a result, the only real question is whether a company has the technology and infrastructure to manage the shift. The performance of GVC and rival Flutter Entertainment  (LON:FLTRF) suggest the answer is a clear yes. GVC shares are up 24% this year, Flutter shares are up 40%.

True, GVC’s numbers are flattered by weak comparatives from a year earlier, when a U.K. crackdown on its highly-addictive fixed-odds betting terminals generated an acute, but ultimately short-term, hit to profits.  

GVC said that the reopening of its U.K. betting shops meant that they are now generating revenues within 10% of pre-lockdown levels, although whether that can be sustained given the rebound in new infections in the U.K. and the steady tightening of public health measures is questionable. The group said its short-term outlook remained "cautious" and noted that the increased guidance assumes "no further material disruptions."

But the shops are merely a legacy business. The excitement around the sector has come from growth in the deregulating U.S. market, where it provides bookmaking technology to MGM Resorts (NYSE:MGM). Here too, GVC had upbeat news, raising its expectation of revenue this year to between $150 and $160 million. Shay Segev, GVC’s new CEO, said that “with a market share of approximately 17% across our live markets, we are making great progress towards being the leading operator in the U.S.”

Having witnessed William Hill (LON:WMH), another U.K. bookmaker, get snapped up earlier by its U.S. partner, Caesars Entertainment (NASDAQ:CZR), shareholders will doubtless be looking for a similar offer for GVC from MGM in due course.

However, the path there might not be an easy one. The second wave of Covid-19 across Europe looks increasingly threatening to organized sport, the life blood of the company’s European operations that flowed more or less freely during the third quarter. Any interruption of Europe’s soccer and horse racing season would set the company back heavily in the short term. If it does, the onus will be on Segev and his team not to panic and sell out before the hoped-for vaccines against the coronavirus ride to the rescue next year.

StockBeat: Buoyant GVC Puts Itself in the Shop Window

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