Heaps of regulatory uncertainty is part and parcel of investing in the gambling sector. And lawmakers in the UK have been getting particularly tough with gaming companies in recent times.
In April, lawmakers slashed maximum stake sizes on fixed-odds betting terminals (FOBTs) to just £2 in a move that has caused hundreds of betting shops to close. And regulators have been at it again this week by banning punters making bets on their credit cards from next April.
The Gambling Commission believes the move will help curb addiction and stop many gamblers racking up huge debts. It’s estimated that up to 800,000 people gamble using a credit card.
This is another obstacle for the likes of GVC Holdings (LSE: GVC), to name just one, to conquer. But I believe the business — whose brands include Ladbrokes, Foxy Bingo and bwin — has the mettle to overcome these problems. And latest financials released today showed why.
It’s not that the FTSE 250 firm isn’t suffering some fallout of greater regulation. Indeed, like-for-like net gaming revenues (NGRs) across its betting shops dropped 11% in the fourth quarter. However, GVC is performing better than many as punters substitute their FOBT fix for betting face to face. In quarter four, for instance, a 17% boom in ‘over the counter’ like-for-like NGRs helped offset the 31% drop in corresponding machine NGRs.
An internet sensation
The biggest takeaway from GVC’s financials, however, was that online sales keep growing at a blistering rate. Indeed, so strong was its performance online that even in spite of those betting restrictions on its machines, at group level NGRs at constant currencies edged 1% higher between October and December.
Thanks to what it described as “strong across all major territories”, GVC saw online NGRs at stable currencies soar 11% in the final quarter of 2019. Gaming revenues generated via the internet rose 9%, while corresponding turnover from sporting events leapt 15% year-on-year.
Business has remained so strong that earnings for 2019 would hit the top end of guidance, GVC said. Its current £670m-£680m estimate is the result of an upgrade made just a few months ago. I, for one, am buzzing over what the business will be guiding for 2020 when preliminaries hit on March 5.
More to come
City analysts currently expect earnings at the gambling giant to soar 20% in 2020. And it’s more than likely (at least in this Fool’s opinion) that the bottom line should keep soaring into the next decade. Its US expansion is paying off handsomely, while the acquisition of Ladbrokes Coral in 2018 offers plenty more upside too.
At current prices GVC boasts a low forward P/E ratio of 12 times and a large 4.2% dividend too. Offering plenty for value, dividend and growth hunters to get stuck into, this FTSE 250 share is one I’d happily buy today and hold for years to come.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended GVC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.