GVC rallies after upping investment in joint venture BetMGM
Ladbrokes owner GVC Holdings rallied on Thursday after agreeing with joint-venture partner MGM Resorts to increase investment in its US sports betting and online gaming business.
GVC announced late on Wednesday that total investment in ROAR Digital, which operates as BetMGM, has been lifted to $450m after shareholders committed to a second round of investment.
This follows MGM Resorts and GVC's initial commitment of $200m and "underpins their commitment to BetMGM becoming a leading player in the rapidly growing US sports betting and iGaming markets", it said.
ROAR Digital chief executive Adam Greenblatt said: "With broad market access secured, our long-term technology foundations now firmly established, and a high performing team in place, this further unequivocal support from our two shareholders will ensure we can achieve leading market positions in this exciting industry that is growing even faster than our initial expectations."
He said BetMGM is on track to generate more than $130m of net revenues this year predominantly from iGaming in New Jersey, given the impact of Covid-19.
"With the return of sports and our growing operations across the US, we anticipate rapid growth in the coming year," he added.
At 1310 BST, GVC shares were up 3.1% at 834.80p.
Analysts at Peel Hunt said the company was "taking US ambition to a new level" as it upped its forecasts and lifted its price target to 1,200p from 840p.
The broker increased forecasts for FY20 EBITDA to £642m from £482m and its FY20 earnings per share estimate to 47.1p from 23.4p. "The increase reflects major sports and sports betting returning sooner than we expected when we last updated forecasts in April," it said.
"This investment is clearly intended as a signal to investors that GVC and MGM plan to invest whatever it takes to make ROAR a major player in the US market. Our revised target price reflects the re-rating of the market since our last update in April, plus the business trading through Covid-19 much better than we had expected with brighter prospects for Online as a result of channel shift thereafter."
Peel Hunt reiterated its ‘buy’ rating on the shares.
Berenberg said the move reinforces the bank’s view that the US market has huge potential and it considers the decision of the two partners to further capitalise the joint venture, thus enabling them to compete aggressively when sports betting returns, "a heavily undervalued part of the GVC story".