It’s just as well that GVC hasn’t been quoting odds on whether there will be a coronavirus vaccine before Christmas. The sports betting and gaming group, which could have done so via its novelty bets, might have been facing big payouts to optimistic punters after a treatment prepared by Pfizer and Biontech was yesterday granted approval for use in Britain as early as next week.
Indeed, the company has not been accepting gambles on anything Covid-related, though that’s not to say that it has ignored the virus, far from it. The pandemic will have come as a shock to a business used to reporting consistently healthy increases in earnings. In fact, the early months looked decidedly dicey, particularly in Britain, after football and horse racing were suspended and it was forced to shut its bricks-and-mortar shops.
Initially, the company warned that it faced a pre-adjusted hit to profits of as much as £100 million a month, but it halved this after cutting costs, including by putting staff on furlough.
GVC was founded as Gaming VC Holdings in Luxembourg in 2004, although, in the tradition that led Paddy Power Betfair to rebadge itself as Flutter Entertainment, it is preparing to change its name to Entain. The group has grown rapidly through acquisitions and operates numerous brands, both digitally and on the high street, including Ladbrokes, Bwin, Coral, Sportingbet, Foxy Bingo and Partypoker.
Its business is spread across 20 countries, employing 24,000 staff, and in its most recent financial year it made an underlying pre-tax profit of £535.8 million on revenues of more than £3.6 billion. It has particularly high hopes for its fast-growing business in the United States, where it has a joint venture with MGM Resorts, the hotels and casinos operator, and a sports tie-up with Yahoo, the search engine.
Its online business has been boosted during the Covid-19 outbreak as customers denied the mainstream sporting calendar turned to more esoteric sporting events, as well as casino games such as roulette and poker. This meant that at the half-year stage GVC was able to report an 11 per cent fall in net gaming revenue and a 5 per cent fall in pre-adjusted profit — less dire than might have been expected— as its digital businesses delivered double-digit growth in their main markets.
GVC is also beginning to move differently under the leadership of Shay Segev, the former chief operating officer of Playtech, the gaming software company. Mr Segev, 44, who became chief executive this year, has a technology background and plans to build on the strengths of GVC’s digital operations. He also plans to withdraw the group from unregulated markets and is going to press further into America, a high-growth sports gaming market that is liberalising its laws state-by-state. His aim is to increase GVC’s presence from nine states to more than twenty by the end of next year. The group has a market share of about 18 per cent in each state it is in. Mr Segev is keen not only to grow in developed markets but also to open in new ones.
GVC is guiding for profit before tax and other items of between £770 million and £790 million, which would be marginally ahead of last year and, in the light of the year it has been through, is highly respectable.
The shares, up 1½p, or 0.1 per cent, at £10.40, were avoided by this column in March and have risen sharply since then. Trading at 16 times Shore Capital’s forecast earnings for a prospective yield of 3.3 per cent, they are not expensive and have become a much more attractive long-term proposition.
Advice Buy
Why In a strong position to capitalise on growth in online sports betting and gaming, particularly in America
Mitchells & Butlers
Drinkers and diners keen to quench their thirst at a Mitchells & Butlers Vintage Inn or wanting to take the family out for a meal at a Harvester will have been able to do so again as of yesterday — probably.
The reality is that a tiered set of restrictions that came into effect at the end of the second national lockdown mean that life is still far from normal.
At least the pubs and restaurants chain has shown how quickly trading can bounce back when its outlets are allowed to reopen, and before the coronavirus struck it was outperforming the wider market on like-for-like sales.
Mitchells & Butlers traces its roots to 1898 and the merger of two Midlands brewers and pub operators, but it was created in its present form in 2003, when it was demerged from the former Bass brewing conglomerate. It operates 1,650 pubs, bars and restaurants under brands from Miller & Carter and Browns to Toby Carvery and All Bar One.
Covid-19 has been devastating for Mitchells & Butlers. It closed all its sites for the first lockdown, furloughed almost all of its more than 40,000-strong workforce, pared back its operating costs and suspended refurbishments at its pubs, which previously had been running at about 250 sites a year.
Unlike other companies in the sector, however, Mitchells & Butlers did not turn to shareholders for emergency equity. In June it agreed an additional £100 million of credit facilities on condition that it ruled out dividends and share and bond buybacks before the end of next September. Still, last month the chain reported a 34.1 per cent slide in revenues to just under £1.5 billion over the year to September 26 and a pre-tax loss of £123 million, against last year’s profit of £177 million. With available liquid capital of £225 million, Mitchells & Butlers should be able to withstand some knocks over the coming months, but a further prolonged lockdown could be catastrophic — as, indeed, it would for the whole sector.
Nevertheless, the shares, up 10½p, or 4.6 per cent, to 240½p yesterday, are richly priced, trading at 32 times Liberum’s forecast earnings. With no dividend in sight, not tempting.
Advice Avoid
Why Optimism about the outlook is built into the price
