GVC lifts outlook on back of online gambling boost

GVC, the gambling group that owns Ladbrokes Coral bookmakers, has upgraded its full-year earnings forecast after a strong performance in its online business helped it to overcome losses resulting from stricter regulation in the UK.

Unlike rival William Hill, GVC on Thursday posted a bullish update saying that the impact on profits following a cut to the maximum stake permitted on the high-speed slot machines known as fixed odds betting terminals were “better than initial expectations”.

It added that earnings before interest, tax, amortisation and depreciation for the full year would be between £650m and £670m, ahead of analysts’ expectations of £630m.

GVC, which bought Ladbrokes Coral for £4bn in March 2018, had expected an impact of roughly £120m on earnings within two years and to shut about 1,000 shops. But on Thursday it said that only 900 shops would close and earnings in its retail business would be £10m better than forecast.

Kenny Alexander, GVC’s chief executive, said that the group had not been purposefully conservative on the impact of the FOBT stake cut.

“They were our best estimates at the time and we’ve managed to perform better than that,” he said. But, he added that the closure of 900 shops would still be a “big disruption” to the business. 

Shares in GVC rose almost 6 per cent on Thursday morning trading, but were down roughly 50 per cent from their value a year ago. 

“The share price performance is definitely at odds with the group’s operational performance,” said Michael Mitchell, an analyst at Davy, who noted that GVC had been better than its rivals at encouraging gamblers who previously played on FOBTs to switch to over-the-counter sports betting.

He added that investor confidence had been knocked by a share sale by the chairman and chief executive in March, a revolt against executive pay, and concerns over how the company disposed of its Turkish business in 2017.

There are also queries about the group’s operations in Germany, where stricter regulation of gambling is under consideration.

GVC said that any costs incurred from rule changes in Germany would be offset by the strength of its online performance in other markets.

Revenues from online gambling increased 17 per cent to £1.01bn in the six months to the end of June, while total revenues adjusted to represent a full year of owning Ladbrokes Coral in 2018 hit consensus estimates at £1.78bn — a 5 per cent improvement on the same period last year.

Profit before tax, adjusted for amortisation related to the Ladbrokes acquisition, was up 31 per cent to £212m. On a reported basis, GVC suffered a loss before tax of £12.3m during the period.

Mr Alexander defended the share sale saying that it was a “personal decision” and that he had “far too much of my personal wealth tied up in one thing”.

Paul Leyland, an analyst at Regulus Partners, said that while the UK retail outlook was improving, it was “a partly controlled collapsing bag” and there could be more costs to come.

Analysts also pointed out that the FOBT stake cut only affected three months of the reported period.

The company announced a 10 per cent increase of its dividend to 17.6 pence a share.