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Betting firm yields one of AIM’s biggest dividends Operating a collection of online betting websites across the world, GVC endeavours to pay at least 75% of net operating cashflow out in dividends. Few AIM companies offer a comparable yield today. Shares in GVC have been quoted on AIM since January 2005. Since then, the company has developed through acquisitions. The biggest change came about in 2013, when GVC formed a consortium with William Hill to purchase Sportingbet plc. Following the acquisition, William Hill took Sportingbet’s Australian operations and GVC took the rest, with William Hill retaining a call on Sportingbet’s Spanish business.

importance of the ‘B2B’ operations to GVC’s bottom line is likely significantly more Despite contributing only nine months of business, this acquisition saw GVC’s revenues increase almost threefold, from €60.3m for 2012 to €170m for 2013. However, with all gambling firms it is essential to gauge their regulatory position. In GVC’s case, this is particularly opaque in the Turkish market, where it operates a B2B (business-to-business) service for East Pioneer Corporation, a firm registered in the Dutch Antilles. This agreement looks to be responsible for around one third of GVC’s revenues. The importance of the ‘B2B’ operations to GVC’s bottom line is likely significantly more as unregulated markets are

Unregulated revenues will always be a concern to analysts and fund managers frequently highly profitable. It is not likely that Turkey will regulate online gambling. However, the situation appears to be more encouraging in Latin America, where GVC operates the betboo brand in Brazil. Management claim that this division continues to grow impressively and enjoys a market-leading position. Online gambling has been transformed by mobile and in-play offerings. These two trends lead to a greater number and less savvy bets being placed. Any firm with a strong mobile and in-play offer is therefore enjoying fast growth. This has a transformational effect on company margins. Encouragingly, GVC is making large strides in both in-play and mobile. The last results from the company revealed that mobile was generating 35% of sportsbook revenues. In-play delivered 73% of sports revenues. In addition to the Sportingbet sports business, GVC also owns CasinoClub, an online casino facing the German market. This service is licensed in Malta. Malta’s EU status enables GVC to legally run CasinoClub in the

German market, regardless of any local regulatory issues. While any company that operates in an online market with a dominant player (in this case, bet365) would normally concern me, GVC is clearly enjoying considerable success and progressing well. Unregulated revenues will always be a concern to analysts and fund managers. However, both GVC and Sportingbet before them earned significant long-term earnings from the Turkish market, despite frequent disruption of the payments processing mechanism. Scepticism over GVC’s quality of earnings has long been present. This has depressed the valuation, resulting in a high yield. GVC’s directors would almost certainly be arrested were they to ever visit Turkey. I expect that the high dividend payout and low amount of retained cash in the company is a deliberate strategy to protect shareholders should the company ever be sued. GVC Holdings (LON:GVC) FOR Big yield Serving growth market AGAINST Material earnings risk High director rewards Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£293m 472p:479p 9.1 7.70% 372p:505p


April 2015 AIM Prospector  
April 2015 AIM Prospector  

Featuring five AIM companies: Benchmark Holdings, GVC Holdings, Jelf Group, idox and Top Pick: Nichols plc.