Challenges closer to home for GVC

GVC senior execs were understandably bullish on Thursday after issuing a stellar set of H1 digital figures, but ramped up exposure to a struggling UK retail sector and a lack of clarity over the timing of the FOBT stake cut will test their mettle over the next few years, writes Jake Pollard

GVC chief financial officer Paul Bowtell and chief executive Kenny Alexander were, unsurprisingly, in very good spirits as they took calls from City analysts on Thursday morning following presentation of the company’s strong figures for the first six months of 2018.

The headline numbers showed NGR up 8% to £1.7bn, gross profit up 6% to £1.1bn combined with strong online momentum, good EU retail performance, Ladbrokes Coral’s integration progressing well and £30m in synergies already achieved by the group.

Therefore Alexander’s claim that GVC had its sights set on becoming “the world’s leading betting brand and this is achieved through scale and geographic diversity”, did not seem too far-fetched.

But looking at the group’s activities and main brands, which include Bwin, PartyPoker, Ladbrokes Coral, Eurobet in Italy or even Betboo in Brazil, the one major cloud on GVC’s horizon is the timing of the UK government’s implementation of the maximum £2 stake for fixed odds betting terminals (FOBTs) and the impact it will have.

The group has already factored in the EBITDA hit it will take from the FOBT maximum stake ruling – £160m in the first year and £120m in the second – but a lack of clarity around the timing of the implementation is just as concerning.

Bowtell told analysts that with a timeframe that stretches “from April 2019 to April 2020 it is important to get clarity, because that (the uncertainty) impacts planning”.

But with Brexit taking up all of the UK government’s energies and March 2019 slated as the date for the UK’s official exit from the EU, it seems unlikely that the maximum stake ruling will be implemented in the first half of next year (at the very least).

This means it could drag on into early 2020, with Bowtell adding that of Ladbrokes Coral’s current estate of 3,700 shops there would be “close to 1,000 shops closing over the next two years according to our figures”.

With over-the-counter trading down 8%, shop margins flat and machines (FOBT) revenues down 3% in the wake of negative press coverage, the omens for the group’s UK retail activities are not good.  

Paul Leyland of Regulus Partners was even more downbeat. “GVC’s performance is in line with what is expected of its parts.

“However, the group is now 40% exposed to a moribund UK retail business facing swingeing regulatory intervention and over 55% exposed to the UK overall, for which growth is likely to be increasingly challenging even post £2 implementation (as recognised by the group),” he said in a note ahead of the earnings call.

The fact that GVC was diversifying away from Germany, where Bwin has roughly 30% market share, was “a blessing from a regulatory risk management perspective, but it is hard to see Italy (facing its own challenges), Georgia, independent Belgian retail acquisitions, and a slowly emerging US position coming close to filling the gaps”.

Finally for all the talk of regulated markets from the industry, operators like GVC have built much of their growth by working in unregulated markets. So it was interesting to see that Ladbrokes.com’s net gaming revenues were up 7% over the period.

Clearly diversifying between regulated and dot com business remains a must for all igaming companies.