M6 BARRON’S October 21, 2019
EuropeanTrader
GVC’s Gamble May Pay Off
ByCallumKeown
GVC HOLDINGS ’ STOCK LOOKS LIKE A GOOD BET AS THE GLOBAL GAMBLING GROUP
positions itself to capitalize on the flourishing U.S. sports betting market.
AcquisitionshavehelpedGVC(ticker:GVC.UK)becomeoneoftheworld’s
largest sports betting and gaming groups. The company’s geographic and
branddiversity,strongonlinegrowth,andpositionintheU.S.meanthestock
could continue to rise.
Afterpeakingat1,132penceinAugustlastyear,sharesdropped50%over
ayearduetoUnitedKingdomregulatorypressuresandmanagementselling
off shares. Since reaching lows of 566 pence this past August, the stock has
climbed 50%, to 849 pence, in two months.
Broker Berenberg has a Buy rating and, in a note earlier this month,
marked it at a 30% premium of 1,100 pence. Jefferies also has a target price
of1,100pence,whileJPMorganCazenovesayssharescouldreach1,040pence.
GVCtradesat11.4timesfutureearningsestimates,a30%discounttoitspeers.
Thecompanyhasamarketvalueof4.9billionpoundssterlingandreported
half-yearearningsbeforeinterest,tax,depreciation,andamortizationof£323.4
million.Earlierthismonth,thecompanyraiseditsfull-yearEbitdaguidancefor
2019to£670millionto£680million,fromaprevious£650millionto£670million.
Online revenue grew 12% in the third quarter, with sports revenue up 16%.
Thecompanywasfoundedin2004inLuxembourgasonlinecasinooperator
GamingVCHoldings.GVChasexpandedthroughacquisitionsincludingBwin
PartyDigitalEntertainment,LadbrokesCoral,andpartofSportingBet.The
companynowacceptsbetsin21languagesand19currencies,employing25,000
people with offices across five continents and thousands of betting shops.
SincetheU.S.SupremeCourtrelaxedafederallawbanningsportsbetting
in May 2018, U.K. gambling firms have rushed to capitalize
on the market. Sports betting is now legal in 11 U.S. states,
with others at various stages of legislation. Flutter Enter-
tainment (FLTR.UK) formerlyPaddyPowerBetfair,hasac-
quired fantasy sports provider FanDuel and more recently
agreed to merge with Sky Bet owner The Stars Group. William Hill
(WMH.UK)partneredwithcasinooperatorEldoradoResorts,whichhastaken
over Caesars Entertainment.
GVCsigneda$200million jointventurewith MGMResortsInternational
(MGM)inJuly2018,andtheBetMGMappwaslaunchedinNewJerseyinSep-
temberofthisyear.Whileitremainstobeseenwhowillgrabthelargestmar-
ketshare,theGVC-MGMtie-uphasastrongbrand,largecustomerbase,and
good track record of execution.
TighterU.K.regulationloweredthemaximumwageronfixed-oddsbetting
terminalsto£2from£100,reducingrevenue.GVCclosed41shopsinthethird
quarter and will shut as many as 900 over the next two years. The company,
however,hasperformedbetterthanexpected,andfurtherdelaystopotential
legislation in Germany will help retail sales in the coming months.
GVCleadsintheonlinesector.BerenberganalystStuartGordon,whohas
atargetpriceof1,100penceonthestock,saidthequarterlyresults“reinforce
our view that [GVC] is the name to own in the sector.” JPMorgan Cazenove
saidthattheonlinebrandswere“bestinclass,”whileDeutscheBankResearch
said GVC is the “standout value play’’ in online gaming.
GVCCEOKennethAlexandersaidinathird-quarterearningsstatement
that “online momentum remains strong across all major territories.”
European
Markets,
pageM23
EmergingMarkets
Turkish Market Is in Retreat
ByCraigMellow
PRESIDENT DONALD TRUMP CLEARLY HAS NO PLANS TO DECIMATE TURKEY’S ECON-
omy,despiteatweetedthreattothateffect.ButTurkishPresidentRecepEr-
dogan may do it all by himself.
Hesortofalreadyhas.Turkey’sinvasionofnortheastSyriacomesatatime
of fragile recovery from August 2018, when an Erdogan-orchestrated credit
bubblepopped.Inflationisstillrunningat15%annually,fromapeakof25%
a year ago. Gross domestic product is inching forward at 1% compared with
7%in2017.“Turkey’sbankingsystemcontinuestobeinacoma,”saysAnasta-
sia Levashova, an emerging markets portfolio manager at Blackfriars Asset
Management.
ThemilitarycampaignagainsttheU.S.’sformerKurdishalliestookafreshbite
outofTurkishassets.The iSharesMSCITurkey exchange-tradedfund(ticker:
TUR)haslost10%sincetheSyrianstormstartedbrewingonOct.7.Yieldson
10-year lira government bonds have jumped two percentage points, to 15.5%.
LuckhasbeenonErdogan’ssideduringthefirstweekorsoofwar.Kurdish
forces quickly retreated, allowing the Turkish leader to grant visiting Vice
PresidentMikePenceafive-daycease-fire.WhiteHousesanctionsprovedto
be a slap on the wrist.
Butinvestorsaren’trushingtobuyTurkishsecuritiesonthedip.Erdogan
hasreturnedtosomeofhisoldeconomictricks,foronething.Turkey’sbudget
deficitisrunningat5%ofgrossdomesticproduct,andcouldbeasmuchas8%
countingguaranteedloansthroughstatebanksandother“quasi-fiscal”activity,
says Cem Karacadag, an emerging markets debt manager at Barings.
Erdogan fired his central bank governor in July. The successor looks
morepliantaboutcuttingratesrapidly,whichrisksanotherblowupofinflation
andcrashinthelira.“Wedon’tbelievethefiscal-andmonetary-policyframe-
work can anchor the country for very long,” Karacadag says.
RepercussionsfromtheSyrianadventurecouldgrowmoreserious,too.The
U.S.CongressisunitingaroundaSenatebillfromRepublicanLindseyGraham
andDemocratChrisVanHollenthatcouldincludesanctionsonTurkey’sen-
ergyindustry.TheEuropeanUnion,Turkey’skeyeconomicpartner,hasbeen
moremuted,mindfulofthemillionsofSyrianrefugeesthatErdogancouldun-
leashontheWest.But Volkswagen (VLKAF)delayedthegreenlightonanew
$1.4billionautoplant,asignofthelonger-termcoststhatTurkeymightpay.
RussiaranasimilargauntletofWesterndisapprovalwithitsinvasionsof
Ukraine five years ago. Formal countermeasures were limited, but the “soft
sanctions” of lost investor confidence knocked Russia from the ranks of dy-
namicgrowtheconomies.AndTurkey,withchroniccurrentaccountdeficitsand
$200billion-plusinforeigncorporateborrowing,canstandisolationmuchless
easilythanRussia.“PastcriseshaveshownthatTurkeyisvulnerabletogeopo-
liticalshocks,”saysBulentAliriza,directoroftheTurkeyProjectattheCenter
for Strategic and International Studies. “The lira could slide and corporate
debt become harder to repay.”
Investorscanmakesimilarmoneythesedaysinmuchlessturbulentplaces.
SovereignEurobondsfromMexicoorBrazilarepayingaboutthesame7%as
Turkey’s,saysMatthewMiskin,co-chiefinvestmentstrategistatJohnHancock
InvestmentManagement.Choosingisano-brainer.ChrisGaffney,president
forworldmarketsatTIAABank,likestheprospectsinIndia.“CallingTurkey
a buy at this point is a bit of a stretch,” he says. “We see better opportunity
elsewhere.”