Is 32Red plc A Better Buy Than GVC Holdings plc, Bwin.party Digital Entertainment plc & Betfair Group Ltd?

Should you buy 32Red plc (LON:TTR), GVC Holdings plc (LON:GVC), Bwin.party Digital Entertainment plc (LON:BPTY) and Betfair Group Ltd (LON:BET)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Online gaming company 32Red (LSE: TTR) revealed that net gaming revenues for the first half of 2015 grew 22% to £18.6 million, following rapid growth in Italy and continued investment in customer service and marketing.

Its latest trading update also offered some negative news. 32Red spent more money to attract new casino customers this year, as customer acquisition costs rose £17 per person on last year, to £197. In addition, casino player yields fell 5% to £380. Although that still leaves a huge profit margin for its casino business, the latest trading update confirms the trend of increasingly expensive customer acquisition costs and declining profitability per customer.

With continued momentum in earnings growth, 32Red’s valuation is attractive. It currently has a P/E ratio of 15.4, but as analysts expect underlying EPS will grow 26% to 5.9 pence in 2015, its forward P/E is just 12.0. For 2016, analysts expect underlying EPS will grow by another 49% to 8.8 pence, which means 32Red’s shares trade at 8.1 times its expected 2016 earnings.

Shares in 32Red fell 2.9% to 70.4 pence in morning trading.

GVC Holdings and Bwin.party Digitial Entertainment

GVC Holdings (LSE: GVC), which owns the sportingbet and Casino Club franchises, is considering making another rival bid for Bwin.party Digitial Entertainment (LSE: BPTY), after the latter agreed to 888 Holdings’ (LSE: 888) offer last week.

An acquisition of Bwin.party could turn out to be a negative for GVC, as Bwin.party has a heavy presence in uncertain regulatory markets, and its online poker business is exposed to a structural decline in the market. Its limited operating cash flow would also put pressure on GVC’s dividend policy.

Analysts expect underlying EPS will grow by 8% to 49.6 pence in 2015, which means its shares have a forward P/E of 8.7. On top of this, GVC has an attractive indicative dividend yield of 9.3%.

Betfair

Betfair (LSE: BET) is probably the best gaming franchise of the four, but it is also by far the most expensive. With a strong management team in place, the company has introduced a savvy advertisement campaign and launched many innovative features. Betfair’s popular betting exchange gives it a strong competitive advantage over its peers, because network effects tend to lead to a single dominant platform.

Diversification offers valuable revenue synergies, and Betfair is particularly strong at cross-selling casino, poker and bingo products. With a strong sports betting franchise, it uses introductory offers and internal advertisements to lower its external casino and bingo customer acquisition costs.

Underlying EPS has grown by an average compound rate of 29.7% over the past five years. After a strong set of results in 2014, analysts currently expect underlying EPS will decline by 4% to 76.3 pence in 2015/6, which implies a forward P/E of 34.4. Underlying EPS is also forecast to grow by 19% in 2016/7, to 90.5 pence, but that still leaves Betfair trading at 29.7 times its expected 2016 earnings.

Cheap and fast growing

In conclusion, 32Red’s shares seems to offer the best balance between value and growth. But as 32Red is a small-cap company, investors should also be prepared for greater volatility.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Beating the S&P 500? I’d buy this FTSE 250 stock for my Stocks and Shares ISA

Beating the S&P 500's tricky, but Paul Summers is optimistic on this FTSE 250 stock's ability to deliver based on…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

2 spectacular passive income stocks I’d feel confident going all in on

While it's true that diversification is key when it comes to safe and reliable investing, these two passive income stocks…

Read more »