GVC continues to generate cash

GVC Holdings's first half figures bear the costs of redomiciling to the Isle of Man but the underlying business held up reasonably well. Net gaming revenue improved from €26m to €28.1m in the six months to June 2010. The underlying figure was flat because the South American business Betboo was not bought until the second half of 2009. GVC increased its marketing spending on the CasinoClub business focused on the German market. Although CasinoClub's net gaming revenue fell during the first half it could have declined even faster without the additional investment. Underlying EBITDA fell from £9m to £6.6m. There were exceptional costs of €3.31m, most of which were accounted for by redomicilation costs and one-off payments to the chief executive and finance director. The €410,000 loss relating to the discontinued Spanish online bingo business are not included in the EBITDA figure. Even after paying a 50 cents a share dividend, there is still €5m of cash in the bank. That is enough to pay an interim dividend of 10 cents a share and the final dividend will probably be the same amount. The strategy is to pay 75% of net cash generated in dividends. However, deferred consideration of €5.87m is payable for Betboo in October 2012 and GVC says that it may have to pass the interim dividend in 2012 in order to finance that payment. GVC has fallen out with gaming software supplier Boss because it believes the latter has made use of the GVC database of customers without its permission. Boss has tried to terminate the provision of its services to GVC's Italian business but GVC obtained an injunction. This dispute has cost €266,000 in the first half and there will be more to come in the second half. Betboo has its own software and this will be used to launch operations in Russia, Turkey, Greece and Portugal. These operations should be profitable in 18 months. Trading has been better in September but it is difficult to assess whether this will continue. The recent European Court of Justice ruling against German legal restrictions have not made the situation any clearer according to GVC. House broker Arbuthnot forecasts a full year pre-tax profit of €8.4m, down from €14m in 2009. At 103.5p a share, the shares are trading on five times prospective 2010 earnings.