Gvc Share Discussion Threads

[jeff h] 12/1/2018 21:37

WE LIST OUT THE 4 KEY POINTS FROM THE 2.7 RELEASED ON 22⁄12⁄17.

1) COST SYNERGY PHASING A LITTLE LONGER THAN EXPECTED BUT COMBINED WITH PROCUREMENT
AND REVENUE SYNERGIES, THE TOTAL NUMBER IS LIKELY TO BE IN EXCESS OF £100M – iN OUR NOTE OF 14⁄12⁄17 WE SET OUT OUR DETAILED MERGER ASSUMPTIONS. THE MID-POINT OF OUR SYNERGY RANGE (£65-150M) WAS £110. THE 2.7 STATES THAT THE GVC ⁄ LCL DEAL WILL DELIVER COST SYNERGIES OF NO LESS THAN £100M. GIVEN THAT BOTH MANAGEMENT TEAMS HAVE BEATEN RECENT SYNERGY TARGETS, WE THINK THERE IS UPSIDE POTENTIAL TO THIS NUMBER AND UPSIDE POTENTIAL TO EXPECTED TIMINGS OF DELIVERING THE SYNERGIES. THE PHASING OF THE SYNERGIES WAS A LITTLE SURPRISING:

£7M YEAR 1, £33M YEAR 2, £56M YEAR 3 AND AT LEAST £100M BY 2021. CLEARLY A KEY DRIVER OF THE TIMING OF SYNERGIES WILL BE CONTRACTS WITH 3RD PARTY SOFTWARE PROVIDERS SUCH AS PLAYTECH. WE WOULD ANTICIPATE THAT THE synergy guidance assumes LCL’s contract with Playtech runs to the end OF THE CONTRACT (WE THINK THE CONTRACT ENDS 2020⁄21). THERE COULD BE SCOPE FOR CONTRACTS WITH 3RD PARTY SOFTWARE PROVIDERS TO BE RENEGOTIATED EARLIER, WHICH COULD MEAN COST SYNERGIES ARE DELIVERED FASTER THAN THE CURRENT GUIDANCE. ADDITIONAL TO THIS, THERE WILL BE AN ANNUAL CAPEX SAVING ARISING FROM TECHNOLOGY AND PROCUREMENT SYNERGIES AND REVENUE SYNERGIES. COMBINED, THIS IMPLIES THAT THE TOTAL SYNERGIES (REVENUE, COST AND PROCUREMENT)
WILL LIKELY BE WELL IN EXCESS OF £100M.

2) TURKISH DISPOSAL NEWS IS A DIS-SYNERGY BUT IS FAR OUTWEIGHED BY VALUE OF LCL DEAL – AS PART OF THE DEAL, GVC IS WAIVING ALL RIGHTS TO RECEIVE AN EARN-OUT FROM THE SALE OF ITS TURKISH BUSINESS. THIS ANNOUNCEMENT WAS DISAPPOINTING FOR GVC SHAREHOLDERS IN OUR VIEW. THIS IS A DIS-synergy from the deal: GVC was expected to receive a maximum of €150m FROM THE SALE OF ITS TURKISH BUSINESS OVER A 5 YEAR PERIOD WITH COMPANY CONSENSUS EXPECTING A CASH INFLOW FROM PAYMENTS IN 2018 (ALBEIT LIKELY TO BE ONLY C. 10-15% OF €150m). We believe this indicates that the value creation from the deal with LCL far OUTWEIGHS THE VALUE THAT WILL BE LOST FROM NOT RECEIVING PROCEEDS FROM THE tURKISH DEAL. WE DO NOT ASSUME ANY CASH INFLOW FROM THE TURKISH DISPOSAL IN OUR GVC STAND-ALONE MODEL.

3) NEW MANAGEMENT STRUCTURE – THE STATEMENT CONFIRMS THAT KENNY ALEXANDER (CURRENT
GVC CEO) WILL BE CEO, PAUL BOWTELL (CURRENT LCL CFO) WILL BE CFO AND LEE FELDMAN WILL BE CHAIRMAN. WE THINK THAT THE NEW MANAGEMENT TEAM STRUCTURE IS STRONG AND NOTE TOO THAT BOTH MR. ALEXANDER AND MR. BOWTELL HAVE EXTENSIVE EXPERIENCE OF DELIVERING LARGE SCALE m&a AND BOTH HAVE EXPERIENCE OF BEATING COST SYNERGY EXPECTATIONS.

4) FINANCING DETAILS – THE CVR IS COVERED BY A LOAN NOTE WHICH IS CONVERTED ONCE THE OUTCOME OF THE TRIENNIAL REVIEW IS CONFIRMED (EXPECTED Q2⁄Q3 2018). THE LOAN NOTE PRINCIPAL VALUE WILL BEAR INTEREST AT A RATE OF 7% PER ANNUM FROM THE DATE OF ISSUE OF THE LOAN NOTES FOR A PERIOD OF SIX MONTHS AND ONE DAY AND AT A RATE OF 9% THEREAFTER UNTIL REDEEMED BY GVC. ON REDEMPTION, THE LOAN NOTE PRINCIPAL VALUE PLUS ACCRUED INTEREST WILL BE REPAID TO THE HOLDERS OF THE LOAN NOTES AND THE LOAN NOTES WILL BE AUTOMATICALLY CANCELLED. THE COST OF DEBT FOR THE REST OF DEAL HAS NOT BEEN ANNOUNCED. LADBROKES CORAL SHAREHOLDERS WILL BE ABLE TO ELECT TO VARY THE PROPORTION OF CASH AND NEW GVC SHARES THEY RECEIVE, SUBJECT TO OFFSETTING ELECTIONS BEING MADE BY OTHER LADBROKES CORAL SHAREHOLDERS.

[jeff h] 12/1/2018 21:22

ACQUISITION VEHICLE WITH MOMENTUM: GVC IS GEOGRAPHICALLY DIVERSIFIED AND TARGETS
BEING A TOP 3 PLAYER IN CORE MARKETS. GVC OPERATES A PORTFOLIO OF WELL-KNOWN GAMBLING BRANDS, INCLUDING BWIN, SPORTINGBET AND PARTY POKER as well as B2B services. GVC’s PROPRIETARY TECH STACK SUPPORTS A COMPLETE PRODUCT SUITE AND PLAYER MANAGEMENT SYSTEM. GVC PAYS LESS TO 3RD PARTY PROVIDERS THAN MANY PEERS AND HAS GREATER FLEXIBILITY.

GVC ⁄ LCL PROFORMA: RE-RATING POTENTIAL. ON PP 4-9 WE SHOW A DETAILED PROFORMA
GVC⁄LCL MODEL. WE SHOW A RANGE OF SCENARIOS. THERE ARE MULTIPLE ASSUMPTIONS
required. Our proforma model suggests GVC’s EPS in CY20E could be between 85-103P
RISING TO 98-117P IN CY21e WHEN SYNERGIES ARE DELIVERED.

RISKS: 1) GVC IS RELATIVELY EXPENSIVE (CY18 P⁄E 16.6X): IF THE LCL DEAL DOES NOT
COMPLETE, WE THINK GVC WILL DE-RATE. 2) LCL’s Australian business faces tax headwinds; FURTHER m&a MAY BE REQUIRED TO INCREASE SCALE IN AUSTRALIA, INCREASING m&a RISK. 3) LADBROKES.COM IS CURRENTLY LOSING UK MARKET SHARE (Q3 RESULTS SOFT). 4) THE LCL DEAL IS THE BIGGEST DEAL GVC HAS DONE; TECH INTEGRATION IS A RISK BUT GVC HAS A SUCCESSFUL m&a TRACK RECORD. 5) REGULATORY RISKS IN KEY GVC MARKETS SUCH AS GERMANY.

[jeff h] 12/1/2018 21:16

Barclays have a research report out though at 28 pages long too big to post...here's the first bit:


PROFORMA EPS IN 2020 BETWEEN 85-103P, IMPLYING A P⁄E OF 9 – 11X: THE DEAL WITH
LCL IS ATTRACTIVE FOR 3 REASONS:

1) GREATER SCALE: A KEY ATTRIBUTE IN THE GAMING SECTOR IN OUR VIEW,
2) HIGH GROWTH: BUOYED BY REVENUE BUT MAINLY BY COST SYNERGIES, AND
3)GEOGRAPHIC DIVERSITY: GUARDING AGAINST HIGHER TAXES IN MATURE MARKETS.

THE COMBINED MANAGEMENT TEAM HAS A STRONG TRACK RECORD OF:
I) INTEGRATING COMPLICATED BUSINESSES, AND
II) BEATING SYNERGY GUIDANCE. ON A PROFORMA BASIS, WE SEE GVC AS CHEAP (CY20 P⁄E
OF C. 9-11X FALLING TO C.8-9.5X IN 2021 WHEN ALL COST SYNERGIES SHOULD HAVE BEEN
DELIVERED), GENERATING STRONG GROWTH (2018-21E EPS CAGR OF C.15-17$), STRONG FCF
(PROFORMA 2020 FCF Cc £509-635M) AND WITH AN ATTRACTIVE ebitda MIX (ONLINE 75%,
RETAIL 25% IN FY20). OUR 2019E PROFORMA SOTP (RETAIL 6X, ONLINE 12.5X ebitda)
SUGGESTS A FAIR VALUE RANGE OF 1,113 – 1,150P: C. 20-24% UPSIDE (12.7-14.4X P⁄E)

WE SEE UPSIDE RISK TO SYNERGY GUIDANCE AND INITIATE AT OW. WE USE OUR STAND-ALONE GVC FORECASTS TO DERIVE OUR PT OF 1,066P (AVERAGE OF DCF AND MULTIPLE-BASED VALUATIONS).

[popper joe] 12/1/2018 19:29

From the recommended offer document:

"Cost and revenue synergies have been identified which support the significant shareholder value creation opportunity of the Acquisition. The Board of GVC believes that the Enlarged Group will be able to achieve recurring annual pre-tax cost synergies of not less than £100 million as a result of the Acquisition. This synergy and saving realisation will take place progressively, whereby approximately £7 million of the total cost synergies will be achieved in the first calendar year following Completion, rising to approximately £33 million by year two and approximately £56 million by year three following Completion. It is expected that a benefit of £100 million of identified cost synergies will be achieved by 2021."

So only £7m in the first year.

[brownie69] 12/1/2018 19:10

GVC are quoting £100m of synergies with Lads but i'm not aware of what time frame. A couple of years I'd guess. Although of course based on Kenny's track record it will be more than that.

[nurdin] 12/1/2018 17:19

My figures are for 2018 ,not 2019 as stated.So we could be close...all academic however, due to several uncertainties, as you say.

[popper joe] 12/1/2018 16:54

I came up with £13.50 from a PE of 13x. But it's all guess work because there is so much uncertainty around the GVC/BWIN and the LADS/CORAL mergers that haven't full flushed through yet.

[nurdin] 12/1/2018 16:27

Yes thats what I arrived at in the end.Many thanks.

The combined unit could record a net profit of some £500m in 2018 allowing for some £50m of cost savings through synergies. A pe of modest 15x would then give price target of around £13. All very rough but gives some idea of possible upside from here.

[popper joe] 12/1/2018 16:00

When the deal was announced they said that there were 303,561,921 GVC shares and 1,915,930,034 LADS shares. At a rate of .141 GVC for each LADS, those LADS shares convert in to 270,146,135 GVC shares. So total of 573,708,056 shares in new combined entity.

[nurdin] 12/1/2018 14:56

Cheers CM..seems a reasonable point to start from.I am sure however that the actual number is buried somewhere within the mass of RNSes they have issued...but I cant find it.

[cheshiremoggie] 12/1/2018 14:44

nurdin I certainly don't know for sure about the shares but since GVC will own 53.5% and LADS 46.5% (IIRC) of the shares you can go from there - ie nearly twice as many as now.CM

[mylands] 12/1/2018 14:36

Around 2pm nearly 2 million shares went through in several trades, all at 930p. Since then we have risen by 14p, suggests an overhang out of the way.

[nurdin] 12/1/2018 14:29

Does anyone know how many shares will be in the issue once the merger is done and dusted? Cant raise Nick Bartram...nor anyone at GVC.

[woodhawk] 12/1/2018 11:59

Yes, but out rather early; ditto BAB. Still, a profit is a profit.

[srpactive] 12/1/2018 11:55

w

Did you get back into hgm?

[woodhawk] 12/1/2018 11:46

Thank u Active. I've been in both. MCRO looking interesting (recovery situation plus 25p ex-divi next week) and I'm doing well with GSK again. Meanwhile GVC edging nearer to 900p. I reckon a bounce soon - but I would sell into it (if I had any shares).

[woodhawk] 12/1/2018 10:09

mylands,

I quite agree with your sentiments on GVC - they have thus far proved to be an excellent management team - and I have, so far, done very well with my investments in GVC. However, my aim is not to worship at the temple but to make money. To that end I am not content to idly sit on my shares and be exposed to the vagaries of the market. I endeavour - not always successfully - to exploit the larger movements to my benefit - therefore I am prepared to try and second guess where the market will go because - in my experience - I find that I substantially increase my profits that way. Perhaps I have been lucky - but unless my luck changes, I see no reason to change my strategy. But each to their own.

PS How on earth would your 'research' strike a nerve? I just dispute your exceedingly nebulous conclusion.

[mylands] 12/1/2018 09:57

WH

What I have learned over many years and mistakes, is never to second guess where a stock price will go. The market works in weird and wonderful ways and now with shorting having an ever increasing influence on wild swings in an SP, it is a fool who thinks they know where the price will head. All I do know is that quality always wins in the end, and in our CEO and his team we have real quality. I've met them all and a very impressive team they are.

Finally, our CEO has never failed me, and there is no reason to think otherwise now.

In answer to Active, 79p rings a belll!!!

WH

I will add, I seem to have struck a nerve with a bit of good old-fashioned research not hype or fake news.

[woodhawk] 12/1/2018 09:53

Who cares?

[srpactive] 12/1/2018 09:42

W

You really are a smart one aren't you, mylands
bought in at 79p, did you?

[woodhawk] 12/1/2018 09:16

So just under 950p - so where to now, mylands? What does all your great research tell you: 900p or 1000p?

[woodhawk] 12/1/2018 08:12

Heaven forbid they revised it down a whole 4p!!

[noujay] 12/1/2018 08:02

Glad they at least they revised it up not down! From my perspective anyway

[mylands] 12/1/2018 07:56

PI’s more or less all the time have very limited information to base their investment decisions. The directors have most, then come the ‘privileged217; institutions, who because of their investment clout, get investment meetings with the company, their advisors and brokers. Finally, come the PIs whose only chance to find out more than is in the public domain is at the AGM. I know I was a PLC director.

So, when we get the chance to see, as we do in a bid situation, how the real drivers of a share price are investing, I like to know, rather than be in the dark and simply have to guess, which is what happens most of the time on these boards. Very little is based on FACT.