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

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.

The post Does GVC Holdings PLC’s Proposed Takeover Of Bwin.party Digital Entertainment Plc Make It A Buy? appeared first on The Twelfth Magpie.

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Prabhat Sakya 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.

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.

The post Is 32Red plc A Better Buy Than GVC Holdings plc, Bwin.party Digital Entertainment plc & Betfair Group Ltd? appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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.

The takeover would be made up of cash and shares and values Bwin at an 11% premium to yesterday’s closing price, with Bwin’s management team apparently in discussions with their counterparts at GVC and Amaya as they seek to finalise the terms of the deal.

A Bad Deal?

Interestingly, Bwin’s share price remains considerably below the offer price, with it currently standing at 101p. This could indicate that the market feels that a deal will ultimately not be done and, with Bwin also announcing that it is on-track to meet full-year expectations, it could be argued that Bwin is worth more than the circa £900m value of the offer.

In fact, Bwin continues to make encouraging progress regarding its planned cost savings as it seeks to turn around three successive years of falling profitability. For example, it is forecast to increase its bottom line by as much as 36% in the current year, which could act as a positive catalyst on the company’s share price. And, with Sports turnover being ahead of expectations, investor sentiment in Bwin could improve and push the company’s share price higher over the medium to long term.

A Good Deal?

Of course, there is also a counter-argument which says that a 110p offer for Bwin would represent good business for its shareholders. A key reason for that is the fact that Bwin trades on a price to earnings (P/E) ratio of 22 and, looking ahead to next year, its bottom line is expected to grow by just 6%. Although that would be in-line with the wider index’s growth rate, it does not appear to warrant such a high rating – especially when Bwin has endured a number of hugely challenging years and its gross win margins were, according to its update, below normalised levels.

Clearly, the online gaming sector is undergoing a period of consolidation, with Bwin being created in its present form via a tie-up with PartyGaming four years ago. And, according to GVC’s management, the deal would create substantial operating and financial synergies, which could result in a more stable, financially sound and profitable business over the medium to long term.

Looking Ahead

With Bwin putting itself up for sale last year and being in the process of divesting a number of its assets, a deal appears to be in the best interests of the company’s investors. After all, competition in the sector is significant and a larger entity could add a greater amount of shareholder value moving forward. Certainly, Bwin’s share price has been a major disappointment in the last three years, with it falling by 40% during the period. However, given its poor performance, an exit price of 110p per share may be a relatively successful outcome for the company’s investors.

The post Bwin.party Digital Entertainment Plc Surges On £900m Offer From GVC Holdings PLC appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens 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.

Operating expenses for the year rose £14.1 million to £265.7 million, even as sales and marketing expenses rose 10% to £136.1 million. This helped EBITDA margins to rise from 23.1% last year to 25.2%.

Betfair is showing the success of its savvy “Tap Tap Boom” marketing campaign, which highlights the simplicity of its mobile betting platform. Mobile gaming revenues now represent 33% of its total, up from 6% two years ago. Ease of navigation and introductory incentives have also led to cross-selling of multiple gaming products, ranging from poker to bingo and online casino.

Betfair is better known for its betting exchange, where the company takes commissions from matching bets between different customers. Although the betting exchange is a less capital-intensive business, liquidity is usually concentrated in the large sporting events. This reduces the appeal of Betfair to new customers, which is why the company launched its own bookmaking business to extend its coverage to a wider range of markets.

Sportsbook, its bookmaking business, is attracting more customers to Betfair, because of its greater simplicity to customers that are more familiar with traditional bookmakers. But, there are synergies with running the two businesses alongside each other. Through “Price Rush”, Betfair could offer its Sportsbook customers better odds, if higher odds are available through the exchange. Product innovations like these increase value for customers, and strengthens Betfair’s competitive position. Its betting exchange also improves its brand awareness, by being a unique unbiased market.

Betfair has a high forward P/E of 35.7, but the premium seems well deserved because the company is seeing rapid revenue growth and has captured market share from its competitors. With its trendsetting product innovations, Betfair will likely continue to deliver much faster earnings growth than William Hill (LSE: WMH) and Bwin.party (LSE: BPTY).

William Hill

Traditional bricks-and mortar-bookmaker William Hill is seeing much slower revenue and earnings growth. Adjusted EPS rose just 4% to 29.9 pence in 2014, even as the company is showing strong growth from online, where revenues have grown by a compound annual growth rate of 21% since 2009.

2015 will be a much more challenging year for William Hill. The increase in the Machine Game Duty cost the company an additional £20 million in the first quarter alone. William Hill has £14 million shortfall, as a series of customer friendly football results were unexpected. This also highlights the value of Betfair’s betting exchange, which reduces the bookmaker’s exposure to one side of the game.

William Hill’s forward P/E is 17.3, with analysts expecting earnings will decline by 18%.

Bwin.party Digital Entertainment

Bwin.Party had said that several gaming companies are interested in acquiring the company, but the selling down of its shares from two of its largest shareholders seem to suggest that the prospects of its takeover is unlikely.

Emerald Bay Limited and Stinson Ridge, owned by former co-founders of Partygaming, sold 49.5 million shares, even as two interested parties, 888 Holdings and Sportingbet owner GVC are said to be preparing for a bid for the company.

Despite the company’s online and mobile focus, revenues have fell 6% to £611.9 million in 2014. The company has been hit hard by its focus on uncertain regulatory markets. It faces a 5% turnover tax in Germany, and the company has pulled out of Greece due to consistent loss-making. With a forward P/E of 21.7, Bwin.party is unattractive for investors and potential suitors.

The post Why Betfair Group Ltd Is A Better Buy William Hill plc & Bwin.party Digital Entertainment Plc appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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

On The Acquisition Trail

It seemed like GVC had found such a target when, on Friday, the sports betting and gaming company confirmed that it had submitted a proposal to buy one of its rivals, Bwin.Party Digital Entertainment (LSE: BPTY).

Shares in the FTSE 250 company spiked over 11% on the day to 99.45p — their highest level since February — as traders started to factor in a bid premium into the price, coupled with the prospect of a higher bid from another potential suitor.

Only in March, GVC Holdings CEO Kenneth Alexander had admitted that his company could be interested in a bid for Bwin. If successful, the deal would be treated as a reverse takeover due to Bwin’s size. Confirming the approach, Bwin reaffirmed that it was “continuing discussions with a number of third parties”, having received revised proposals.

On Monday of this week, it was confirmed that 888 Holdings (LSE: 888) had also made an approach, in a cash and share offer, already supported by around 59% of shareholders, sending Bwin’s shares over 7% higher on the day.

Not to be outdone, however, GVC and Canadian company Amaya Gaming have teamed up for a bid to purchase and then break up the company.

A Good Strategic Fit?

Amaya Inc, a CAD$4bn+ organisation listed in Toronto, owns brands including Pokerstars and Full Tilt Poker, and is believed to be eyeing up Bwin’s poker assets and possibly its sportsbook.

There is talk of plans between Amaya and GVC to set up a special purpose vehicle to snap up the FTSE 250 firm, in a purchase that would be paid for with a combination of cash from Amaya and GVC shares, although it is currently unclear how this will look or work in practice

The duo are hoping that joining forces will trump the approach from online gambling business 888 Holdings.

The rival suitor said that it “believes that there is significant industrial logic in a combination of 888 and bwin.party, benefiting both companies and all shareholders”.

With the election out of the way, it seems that the Conservative majority has calmed fears that the industry would be further regulated and subjected to more punitive taxes going forward.

Indeed, as early as November 2014, the firm confirmed that it was in talks with “a number of interested parties about a variety of potential business combinations”. Deutsche Bank has been handling the process to date.

Who’s My Money On?

Well, GVC has previous form when it comes to joint takeovers, having teamed up with William Hill a couple of years ago by breaking up Sportingbet.  The bookmaker acquired the Australian business and Spanish operations, while GVC took on the assets in countries where the risks are greater because regulations are not as clearly defined.

Since then, the AIM-listed firm has done an excellent job absorbing the unregulated businesses from Sportingbet, streamlining the business and showing good growth, even in the face of a rather weak Euro.  Bwin is exposed to these “grey” markets, with roughly half of its revenues generated from countries that lack gambling regulation.

Trading at the company has been weak for some time, and last year it was targeted for a shake-up by American activist investor SpringOwl.  It is clear that the company needs to do something to realise its value – given GVC’s past track record, my money is on them.

The post Do The Odds Stack Up In Your Favour By Investing In Bwin.party Digital Entertainment Plc, GVC Holdings Plc And 888 Holdings Public Limited Company? appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Dave Sullivan owns shares in GVC Holdings. 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.

888’s move confirms that Bwin.Party shapes up as an attractive target in the sector, coming hard on the heels of a similar takeover offer delivered Friday 15 May by another sector peer, GVC Holdings (LSE: GVC).

In play

Needless to say, Bwin.Party shares soared on the news of all this interest in the company, and perhaps on the smell of it in the air before hand, rising around 27% since the beginning of May.

888 Holdings and GVC Holdings see Bwin.Party as a good fit to their existing operations, and both potential acquirers saw their shares buoyant through the first half of May too, suggesting that investors view sector consolidation as desirable.

A good fit Bwin.Party may be, but the approaches of both 888 and GVC strike me as ambitious. This is how the firms compare: 

Bwin.Party is the largest firm on most measures and therefore represents a big mouthful for its suitors to chew. The firm resides in the ‘grown up’ FTSE 250 index and outsizes its rivals in terms of market capitalisation and turnover.

Based on the numbers it’s easy to imagine Bwin.Party swinging its weight and pitching for its rivals, not the other way around as we are seeing. Indeed, GVC states that if its proposed offer were to complete, it would constitute a reverse takeover due to the size of Bwin.Party relative to GVC. Indeed, GVC is roughly a third the size of Bwin.Party.  

What next?

Consolidation in a sector can make sense, particularly in areas as volatile and cyclical as online gaming. In theory, it seems attractive to eliminate competition, gain market share and cut costs through acquisition. It’s also easy to see the appeal for a relative minnow such as GVC to leap frog into the bigger FTSE 250 league in one transaction.

However, as with all early-stage takeover pitches, there can be no certainty that either bid will succeed. We’ll just have to wait and see what eventually happens, if anything. It’s even possible that these early overtures could presage further manoeuvring with Bwin.Party in the driving seat.

The post Interest From 888 Holdings plc & GVC Holdings plc Has Bwin. Party Digital Entertainment plc All Aflutter appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Kevin Godbold 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.

However, for those that are not concerned about the ethical implications of investing in gambling, they are interesting investments. 

Research has shown that over the past four decades or so, gaming stocks have — as a whole — outperformed the market by around 2% per annum. This trend has been called the ‘sin stock’ anomaly for the simple reason that no one can understand why it occurs. 

That being said, not all gaming stocks are created equal. So, which company deserves a place in your portfolio?

Cash machine 

As a former shareholder of 32Red, I know that there are two things the company is good at: growing profits and generating cash. 

For the five years through to the end of 2015, it’s estimated that 32Red’s annual pre-tax profit will have quadrupled. The group’s earnings per share have grown at a compound annual rate of 33% since 2010. 

Moreover, since 2010 32Red has generated around £12m in cash, after capital spending. Of this, the company has returned £4.5m to shareholders, around 7.3p per share. 

And the cash returns are unlikely to stop any time soon. 32Red has over £7m of cash on its balance sheet and no debt. According to City analysts, the company is set to yield 4.3% during 2015 and currently trades at a forward P/E of 11.3. 

High-street concerns

The big difference between 32Red and Ladbrokes is the formers high-street presence. 32Red offers an online gaming platform while Ladbrokes relies on its high-street presence to generate the majority of its revenue. 

Ladbrokes reported a 60% fall in quarter-on-quarter profits during the first three months of this year. The company is now searching for ways to boost its recurring income. 

What’s more, Ladbrokes’ online presence has been sliding for some time and competitors surge ahead, concerns over the group’s dividend payout have started to surface.

Ladbrokes is set to yield 6.6% this year although the payout won’t be covered by earnings per share. 

Merger mania 

Bwin.party is currently conducting preliminary talks with “a number of interested parties regarding a variety of potential business combinations”. 

However, the company’s shares have had a terrible year to date, falling by as much as 25%. Nevertheless, City analysts expect the company’s earnings to expand by 25% this year, and Bwin is trading at a PEG ratio of 0.8. The company has a net cash balance and a yield of 3.7% at present levels. 

Similarly, 888 became a takeover target earlier this year when William Hill made an offer for the company, which, ultimately failed. But shortly after the deal fell apart, 888 announced a 14% increase in full-year revenues for 2014. Profits for the period jumped by a third. 

888’s management remains open to other takeover offers and in the meantime the company’s shares support a dividend yield of 3.5%. 888 trades at a lofty forward P/E of 19.9. 

Expensive growth 

Lastly, Betfair, which is an expensive bet on the sector. Specifically, the company currently trades at a forward P/E of 33. Earnings per share are set to expand by 53% this year, before falling by 2% during 2016. 

However, due to the unpredictable nature of the gambling business, it’s difficult to justify paying such a high premium for Betfair’s shares. A run of bad luck for the gaming company could cut earnings estimates in half, which would send the shares crashing back to earth. Also, the company only offers a token dividend yield of 1.2%. 

Only one option 

Of these five companies, only one stands out to me: 32Red. The company’s shares are cheap, the group is cash generative and management looks after shareholders.

The post Should You Take A Punt On These Gaming Companies: 32Red Plc, Ladbrokes PLC, Bwin.party Digital Entertainment Plc, 888 Holdings Public Limited Company And Betfair Group Ltd appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?