When markets are falling, fund managers tend to look for, or at least hold onto, yield. One stock we decided to have a look at is GVC Holdings plc, a multinational sports betting and gaming group which shows revenue growth, earnings per share growth and dividend growth. The stock trades at a discount to its peers and looks a good bet.
GVC Holdings PLC is an online gaming holding company. The Company has two principal business lines include business to consumer (B2C) and business and business (B2B). The B2C business unit consists of CasinoClub, an online casino operating principally in German markets; Betboo, which offers a sports book and bingo operation on its own platform along with casino and poker on third-party platform to Brazilian customers. The B2B business unit consists of the third-party support contract for East Pioneer Corporation B.V. (EPC). The Company provides a range of back-office services to EPC. It added to its core brands on 19 March 2013 by acquiring Sportingbet plc (excluding Australia and Spain) for £72m.
In July, GVC issued a positive trading update for the 6 months to 30 June 2014. They announced record trading for the second successive quarter with net gaming revenues (NGR) up 11% on the same period the previous year and 8.9% better than the previous quarter, with total revenues up 45% on H1 2013. The World Cup has been the main reason for these better than expected results and GVC also announced an increase to the quarterly dividend.
Year Ending | Revenue (€ m) | Pre-tax (€ m) | EPS | P/E | PEG | EPS Grth. | Div | Yield |
31-Dec-12 | 60.33 | 10.83 | 32.10¢ | 9.1 | 0.0 | +203% | 22.00¢ | 7.5% |
31-Dec-13 | 168.41 | 13.01 | 58.60¢ | 7.6 | 0.1 | +83% | 44.00¢ | 9.9% |
31-Dec-14 | 205.05 | 43.60 | 66.69¢ | 8.0 | 0.6 | +14% | 49.00¢ | 9.3% |
31-Dec-15 | 209.74 | 45.00 | 68.18¢ | 7.8 | 3.5 | +2% | 50.00¢ | 9.5% |
With over a 9% dividend yield, this should provide support for the share price and despite its recent gains, still looks attractive to new investors. With a 2014 PE around 8, it’s cheap and trades at a discount to its peers. The only issues we have with the stock is that it has a low number of shares in issue and is therefore rather illiquid, hence this can cause quite sharp movements in the share price on any increased volume. The other issue is that GVC has a higher than average exposure to unregulated markets, however some of its peers also have unregulated income streams.
Looking at GVC’s recent share price performance, the stock is up around 25% over the past year. It took off from around 350p and has been on a steady rise since, recently reaching a high around 460p before falling back to today’s price of 439p. The price found support on the lower trend channel around 420p and seems to be ready to continue its move higher, up 3% on Friday. Over the next 3-6 months, we would expect the share price to reach 500p, providing capital gains as well as income. The stock pays a quarterly dividend. Should the price fall out of the trend channel, this may be a signal to cut the position and reassess.
All-in-all, the stock has a low PE, a high dividend yield and showing growth in revenues and profits. All these factors point to a share price that should rise. We would be buyers.
