Canaccord leaves GVC Holdings at 'buy', raises target price

GVC Holdings shares gained on Wednesday as Canaccord Genuity reiterated a ‘buy’ rating on the stock and lifted its target price to 680p from 615p.

In a trading update, the online gambling company reported 11% increase in like-for-like revenue in the six months to 30 June, supported by favourable results in the Euro 2016 football tournament and particularly strong growth in both wagering and gaming in the second quarter.

With the acquisition of Bwin.party completed on 1 February, GVC will gain a premium listing on the full list of the London Stock Exchange in August and looks likely to be added to the FTSE 250 at the next quarterly review.

The trading statement from GVC, ahead of its interim results announcement in September, confirmed total net gaming revenue (NGR) on a reported-currency pro forma basis, which treats revenue as if Bwin had been acquired in January, was up 8% to €439m. Or on a reported basis, as Bwin in fact joined a month later, it was up 223% to €388m.

“Management is clearly beginning to drive meaningful revenue synergies from the bwin.party acquisition, on top of its targeted €125m of cost savings,” said Canaccord analyst Simon Davies.

“GVC has the makings of an extraordinary turnaround story. bwin.party generated a 7.5% compound annual revenue decline in the period 2010 to 2015, but it has now reported three consecutive quarters of strong growth.”

Davies added that GVC has been the “star performer” in the online gaming sector, with shares up 67% since the start of December and 34% year-to-date.

“The shares trade on a 2017 enterprise value/earnings before interest, tax, depreciation and amortisation of just 8.1x, a free cash flow yield of 8.1% and price-earnings ratio of 10.9x.”

However, he warned that GVC is approaching a period of integration risk, with the transition of GVC sportsbook customers over to the bwin platform in the next few months.

Canaccord expects gross win margins to normalise in the second half and said third quarter wagering activity could be affected by the “customer unfriendly results” from the Euros.

Shares rose 2.69% to 630.50p at 1054 BST.