Quick Glance at Business Updates for Two FTSE Listed Stocks Amid Coronavirus Uncertainty: STOB & GVC

Rising requirements for lockdown across the globe to curb the spread of Coronavirus, the businesses worldwide are getting impacted, while companies engaged in the travel and tourism, consumer discretionary, non-essential retail stores have got the worse hit. Today, we will discuss trading updates of two LSE listed Companies, Stobart Group Ltd and GVC Holdings PLC, which are currently facing cost pressures and their business is getting affected during such a challenging situation. Let’s walk through their business model, strategy, key developments, financial performance and business outlook.

Stobart Group Ltd (LON: STOB)

Stobart Group is the United Kingdom-based infrastructure and support services company, which focusses on three major divisions – Rail & Civils, Aviation and Energy and holds a portfolio of investments and infrastructure assets.

Potential of the Business Model

The group invest and develop assets in the sectors including – Aviation and Energy, which has been historically supported by Rail & Civils division.

Stobart Aviation: This division has investments and relationship with several airlines including – Flybe, easyJet, Air Malta, Loganair and Ryanair. It is also responsible for keeping London Southend Airport’s runway upgraded.

Stobart Energy: This division has several contracts to supply two million tonnes per annum of biomass including Margam, Tilbury, Widnes, Cramlington, Templeborough and Port Clarence. It provides competitive and advanced supply chain IT systems to their specialist transport fleet.

Stobart Rail & Civils: This division designs, construct and maintain projects for both rail and non-rail sectors.

Strategic Moves to Counter Future Challenges

  • London Southend is the fastest growing airport with 8.2 million catchments within an hour’s travel time. Moreover, it is developing capacity for over 10 million passengers per year. Their cost-efficiency can offset the challenges related to fuel prices.
  • Stobart Energy has the capability to supply fuel across the United Kingdom; it has been focused to develop recovery plants and extracting financial, social and environmental value to create a sustainable energy model.
  • Stobart Rail and Civils has been a key partner to network rail and supporting 75% of its operating regions. The group has appointed a Commercial Director, Regional Director and Engineering Director to provide innovative solutions across projects and attract significant pipelines.

Recent Actions to ponder over

  • 6th April 2020: The group has furloughed half of its 1,500 employees under the government scheme of job retention.
  • 5th March 2020: With regards to its investment in Connect Airways, which is a consortium, (comprising - Stobart Group, Cyrus Capital and Virgin Atlantic). The group announced that over the past 14 months, £135m had been invested by Connect Airways to keep the airline flying for a year further.
  • 9 October 2019: Announced an agreement to support import and export services at London Southend Airport, with a global logistics customer.

Trading Update – In relation to COVID-19 and its impact

  • The company owns and operates assets in Stobart Energy and London Southend Airport. The company is taking several steps regarding the COVID-19, like 20% pay reductions for the Board and Senior Leadership, recruitment freeze, among others.
  • In Stobart Aviation division, the group holds over 20 aircraft, which are currently based on the airport's stands.
  • In order to generate require waste wood fuel circa 2 per cent of the UK's electricity needs, Stobart Energy division, is presently maintaining its operation with renewable energy plants.
  • Now coming to the update, which is provided on 17th March 2020, the Group's Aviation and Energy segment affirmed that their full-year performance for FY20 (ended on 29th February 2020) was in line with management expectations. Contrarily, the non-core Rail & Civils fell short compared to the expectation. The collapsed of Flybe has a led number of guarantees and potential lease obligations, and the group is looking for COVID-19 situations to subside before giving further clarity.

(Company’s Annual Report)

Share Price Performance

Daily Chart as on April 06, 2020, before the market closed (Source: Thomson Reuters)

STOB shares were trading at GBX 48.725 on 6th April 2020 (at the time of writing before the market close at 8:15 AM GMT), up by 5.92% per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 157.40/GBX 28.85.

Conclusion

Presently, the challenges have been significant, which was presented by the rapid spread of the COVID-19 infections. However, the group has been operating energy and aviation assets with substantial underlying value. As per the medium and long run forecast, the company has potential to yield substantial value for stakeholders. However, the Group has been adopting measures to maintain cash and reduce its cost base to battle this uncertain period.

GVC Holdings PLC (LON: GVC)

(Source: Annual Report)

GVC is an FTSE-250 listed, sports betting and gaming company which holds licenses in around 20 jurisdictions and operates with over 25,000 employees in five continents with 20 offices. It accepts bets in 19 currencies and support with 21 languages.

The group caters millions of people every day with several brands through desktops, tablets and mobile platforms. The brand includes –

  • Sports Brands: bwin, Ladbrokes, Coral, Betboo, Betdaq, Gamebookers, among others.
  • Games Brands: Danske Spil, Fortuna, partypoker, PartyCasino, among others.

Creating Value While Providing Responsible Gaming and Cutting-Edge Experience

GVC believes in achieving the company vision through scale expansion and international diversification. The group has been leveraging its proven proprietary technology through established brands and create progressive shareholder value by acquisitions like Ladbrokes and Coral Group PLC.

How do they deliver that?

Organically:

  • Return on Investments focused marketing.
  • Continuous developments in products and services.
  • Focus on core market areas.
  • Enhanced customers relationship management and business intelligence.
  • Cross-Selling.

Mergers and Acquisitions:

  • Targeting underweight markets including, both regulated and unregulated.
  • Prefer flexible online
  • Technologically advanced business to customer centric games.

(Source: Annual Report)

Achievements, Developments and Actions made in the Recent Past

  • 3rd April 2020: The group appointed Grainne Hurst as the Corporate Affairs Director to strengthen their position in the gambling market and develop media and external relationships.
  • 2nd April 2020: The gaming brand, partypoker has obtained a license for operations in the Italian gaming market.
  • 1st April 2020: Received an exclusive agreement through PartyCasino brand to create a game over TV series, La Casa de Papel.

Q1 Trading Update for the Period from 1 January to 31 March 2020 and Impact of COVID-19

  • The company has started the year 2020 well, with an increase in Online NGR (net gaming revenue) of 19% (due to strong growth in all major territories), and Group NGR of 1% at a constant currency basis in Q1 FY20. On a like-for-like (LfL) basis, the UK retail decreased by 19%
  • in Q1. Mostly all division has performed well in the period 1st January to 15th March 2020, supported by favourable sports margins.
  • From mid-March 2020, the group’s revenue significantly reduced, due to the cancellation of sports events and the closure of retail outlets partially offset by the COVID-19 impact. GVC expected that this closure and cancellation would result in a reduction in EBITDA of around £100 million per month before any mitigating actions. However, in GVC's gaming business, there would be a modest increase.
  • Following the initiation of several mitigating actions, GVC currently expects to decrease this EBITDA impact to around £50 million per month. The financial position stays healthy; however, given the continuing uncertainty regarding timings of the easing of lockdown measures around the world, the management has taken the prudent action to withdraw the 2nd interim dividend, which is due for payment on 23rd April 2020.

Glance at the financial performance for the FY2019 period

  • The company has given strong operational momentum and financial performance, with Group proforma NGR up 2% (up 3% at constant currency basis), Online NGR up 13%, UK Retail NGR down 15%, and European NGR up 4%.
  • Group underlying proforma EBITDA was £678 million (pre-IFRS 16), a decrease of 10% YoY though £50 million ahead of original consensus. Online NGR continued double-digit growth with market share gains in all key territories.
  • The integration pertinent to Coral, Gala Bingo brands and Ladbrokes is expected to complete by the end of the first half of 2020. During the year 2019, the Roar Digital made good progress in the US, with the highlights being the launch in September of the BetMGM app in New Jersey.

Share Price Performance

Daily Chart as on April 06, 2020, before the market closed (Source: Thomson Reuters)

GVC shares were trading at GBX 552.80 on 6th April 2020 (at the time of writing before the market close at 8:15 AM GMT), up by 14.29% per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 956.80/GBX 292.70.

Business Outlook Scenario in Near Term

In the medium term, the company is targeting double-digit revenue growth from its online business through M&A activity and underlying market growth. In 2020 guidance, the capex was £160 million with an additional £10 million for one-off license costs. While the international and product diversification is standing in a decent position during the current uncertainty, the COVID-19 pandemic is posing an unprecedented challenge to the industry and the business.


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