GVC Holdings: Scandinavian Opportunity
Edison | May 15, 2014 06:54AM ET
GVC Hldgs Plc (LONDON:GVC) is acquiring a 15% stake in a Scandinavian gaming operator for €3.5m, backing an ambitious and experienced management team, gaining valuable experience in a large market and with a call option to acquire the business in 2017. At the same time it has released a positive trading update. Our estimates are unchanged. The 2014e EV/EBITDA is only 6.5x, 35% below the peer group average and the yield (8.8% for 2014e) remains a key attraction for investors prepared to accept the regulatory profile.
GVC is taking a 15% stake in a JV with a start-up Scandinavian gaming operator, Betit, which already has 60 employees and whose websites – Thrills.com and Superlenny.com – are growing rapidly. As with Betboo in Latin America, this provides a low-risk and low cost entry to a major new market for GVC. It has a call option to acquire the business for a minimum of €70m in 2017 (with the actual price based on performance and revenue mix). There is also a put option with no minimum level, which would be subject to (among other things) GVC’s ability to raise finance. Any deal would be earnings accretive. In the meantime there is no impact on our forecasts as the investment will be equity accounted.
GVC also reported Q214 revenue to date (41 days) of €601k/day, up 11% y-o-y (up 20% at constant currency). There will be a more detailed update in July, after the FIFA World Cup. GVC is highly cash focused and has a 70% dividend payout policy; the next payment of 16c on 19 May comprises an 11.5c quarterly plus a 4.5c special dividend.
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