I have been a long-time investor in GVC (LSE: GVC). It is a small cap that has caught my eye because it is a growing company which looks good value, with a 2015 P/E ratio of 8.16, and a 2016 P/E ratio of just 7.74. That is an absolute bargain, considering the fact that this business is growing at a rate of knots.
GVC has a stonking dividend yield
Throw in a dividend yield of 9.22%, rising to 10.36%, and most investors can see this company is a no-brainer of a buy. This is a business that is churning out cash, most of which is turning into dividends. And it has hardly any debt.
Online betting is a huge and growing industry with a bright future. However, this optimistic picture is tempered by increasing regulation and taxation in the industry. Yet GVC, which owns the sportingbet brand, has been seen as one of the long-term winners in this sector.
All this means that, when I heard GVC was bidding for bwinparty digital entertainment (LSE: BPTY), I had mixed feelings. Compare the market capitalisations and the valuations and you will understand my concerns.
GVC is worth £266 million compared to bwin’s £963 million. But while GVC has a single-digit P/E ratio, bwin’s 2015 P/E ratio is 23.28, and it’s 2016 P/E ratio is 22.57, with a dividend yield of 2.62% rising to 2.82%.
Much of bwin’s value is in its brands: bwin, partypoker, Foxy Bingo and InterTrader. This firm’s strength is the booming online gaming sector, and this is something which GVC wants a slice of.
And I’m just wondering if the bwin bid is a little too much excitement
The trouble is rival firm 888 has already made a bid, which means that we have a takeover battle. 888’s bid valued the company at £900 million. But GVC is trying to gazump the firm with a £1.03 billion offer in cash and shares.
If GVC succeeds, it would be a transformational deal, and the business would be one of the world’s most innovative online entertainment companies, combining online betting and gaming and producing an estimated £95.6 million in synergies.
I think the trend in gaming apps is only just getting under way, and I have always felt that investing in GVC was a great way to buy into this trend. By going all in with its bid for bwin, GVC is showing it means business. This is a very audacious bid; but, given GVC’s track record in making acquisitions work, I think it can pull it off.
However, I just wonder whether many GVC shareholders might just be hoping that the deal falls through. Then we could settle back into watching the share price steadily rise, and the dividend cheques roll in.
You see, I rather like the quiet life.
