GVC has released a short first quarter trading update. Underlying net gaming revenue is up 9%, in line with the rate of increase seen over last year, and the board remains confident of meeting its targets for the year.
The shares rose 1.6% in early trading.
Online gaming specialist GVC is a serial accumulator. The latest addition, Ladbrokes Coral, makes it an unusual mix of established high street name and digital disruptor.
That split is reflected in recent trading updates. UK in-shop trends have been weak, and tighter restrictions on gambling machines look set to make things worse. The government's move to cap staking on fixed odds betting terminals (FOBTs) will hopefully make society richer, but the lost profits will make GVC poorer. Around 1,000 shops are likely to close.
However, we think there are positives.
The group reckons it can get £130m of cost savings from integrating the two businesses. That figure's actually increased from the initial target of around £100m, despite the tighter restrictions on FOBTs.
In any case, the group's trump card remains its online business. While the FOBT hit will likely see group profits dip in 2019, the mushrooming digital division means we think GVC looks well-placed to deliver strong growth in 2020 and beyond, provided of course regulations don't get tighter.
In time, those earnings could be boosted by an exciting opportunity in the US. A Supreme Court judgement has given every state the power to legalise sports betting if it wants to.
The chance to snap up market share in such a populous, affluent and sports-mad country is a once in a generation opportunity. Of course such opportunities don't come without risks. It remains to be seen how quickly different states give the thumbs up to sports betting, and there'll be plenty of competition for a seat at the table.
But we think GVC has given itself a good chance of success. At least initially, casinos will be the go-to location for sports betting, and GVC has teamed up with MGM Resorts. There's a lot to like about combining GVC's experience with MGM's well-established brand.
The multitude of moving parts means GVC has been fairly volatile in recent times, and significant share sales from key directors rocked investors' confidence in March.
However, trading remains impressive, and the dividend is well-underpinned by earnings and cash flow. The prospective yield is 6% so investors should get paid to wait and see if GVC can deliver the goods stateside.
First quarter trading details
First quarter growth was again driven by the Online business, where underlying net gaming revenue rose 18%. Win margins were flat, with wagers up 19%.
While trends were similar in UK and European Retail, in that improved sports and machine wagering helped offset softer sports win margins, net gaming revenue was flat year-on-year. GVC says it will fully assess the impact of the lower machine staking limits in the coming weeks.
CEO Kenneth Alexander said "This trading update reflects a continuation of the strong trends reported on 5 March 2019, and represents an excellent start to the year. We continue to see good volume growth across all major online brands and territories and we remain very confident of achieving our target of double-digit online NGR growth."
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