GVC Holdings gains on Numis upgrade

GVC Holdings was given a boost on Friday after Numis raised its rating on the gambling company to ‘buy’ from’ hold’ and reiterated a target price of 765p following “strong” fourth quarter results.

In the fourth quarter to 31 December, GVC said net gaming revenue (NGR) per day was €2.51m - an increase of 7%, or 9% in constant currency, over the same period in 2015.

“This is a strong result given peers such as Paddy Power Betfair only reported flat revenue in the fourth quarter,” Numis said.

The group, which bought Bwin for £1.1bn in September 2015, said it now expects full year group EBITDA to be towards the upper end of the market expectation range of €202.7-€205.5m.

The owner of Sportingbet and Betboo expects pro-forma group net gaming revenue to rise to €894m from €822m.

Numis said the company’s net gaming revenue estimate is 3% ahead of its forecast and 1% ahead of the upper range of previous guidance. The EBITDA guidance is close to the broker’s existing projection.

Following the fourth quarter results, Numis has raised its estimates for full year group revenue and EBIT.

“Although we expect the comparatives to become more challenging throughout the year, e.g. no major football tournament, our previous revenue forecast of €919m (+4% yoy) is too conservative and therefore we are raising this by 1% to €930m with a similar upgrade to EBITDA (to €255m), which is in line with current consensus.”

GVC’s shares have been under pressure the past three months amid concerns about the wider sector, including potential restriction on fixed odds betting terminals and marketing.

However, Numis said GVC has no retail exposure and the encouraging fourth quarter update reaffirms its preference for gambling stocks which have online exposure, strong momentum and wide geographical diversification for mitigating the regulatory impact from any specific regulator.

“This, coupled with the recent share price weakness provides us with an opportunity to upgrade our recommendation to 'buy'. With 24% upside to our 765p target price, the shares are now trading on an undemanding 13.2x 2017E PER and 9.1x EV/EBITDA. “

Shares increased 2.14% to 669p at 1103 GMT.