Betting is Buoyant Despite the Sports Shutdown

The Week: Morningstar columnist Rodney Hobson notes that shares in gambling giant GVC are close to their record highs as betting thrives in the pandemic 

Rodney Hobson 9 October, 2020 | 9:27AM
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The Week

It’s easy to get your priorities confused when you are faced with Armageddon but it’s still hard to comprehend that gambling group GVC (GVC) has bounced back way beyond its pre-crisis level and continues to rise. Contrast that with pharmaceuticals group GlaxoSmithKline (GSK) where shares have almost slipped back to their March low. Perhaps people have decided that if you are going to die tomorrow you might as well gamble your money away rather than bank on a Covid-19 cure coming to save us at the last minute.

GVC reported net gaming revenue up 12% in the third quarter, with online gaming ahead of pre-coronavirus levels. The inability of sports fans to attend matches seems to have enhanced rather than dimmed their enthusiasm for betting on the results.

Momentum is building up in the United States, where net revenue for the full year is set to beat expectations. Operations in Australia are booking as well. Success abroad has prompted GVC to buy a leading online gambling operator in Portugal.

The shares slumped from 931p to 325p in the stock market carnage in February and March but have since climbed all the way to 1,050p. That is close to the all-time high of 1,132p set just over two years ago, yet there is no obvious reason why shareholders should take profits at this stage. While I think that the shares have recovered far enough for now, I wouldn’t bet on it.

HSS Could Fall Further

Is the pot 90% full or 10% empty? It’s a question specifically for shareholders in HSS Hire (HSS) but it has wider implications as we come out of the worst of the pandemic.

HSS took a bad knock during lockdown, in common with all companies in the construction industry, but it boasts that revenue is now running at over 90% of last year’s levels. While that is admittedly much better than the 63% recorded in the second quarter to June 27, another way of putting it is that revenue is still not back to last year’s levels.

That wouldn’t be quite so bad if HSS had not reported a pretax loss in the first half of last year and a much bigger loss this time. Getting back to last year’s levels is simply not good enough.

HSS proposes to close physical sites and accelerate the switch to digital sales and click-and-collect. This will cost money, including redundancy payments for 300 staff, while it will take quite some time to see if this works. In the meantime, HSS is, understandably, not offering any financial guidance.

The shares peaked at 115p just over four years ago but they were worth less than half that at 43p even before Covid-19 struck. They have since halved again at just over 20p, which is even lower than the level hit at the bottom of the stock market collapse. Unless there is a drastic improvement any time soon, they could lose half their value once again … and again.

Castings is Solid

For some illogical reason I feel slightly more optimistic about iron foundry operator Castings (CGS), even though the pot there is still only 85% full. Demand from commercial vehicle makers is recovering but still has some way to go and a messy Brexit could seriously affect exports.

It is reasonable to hope that production will be back to pre-crisis levels during the current quarter. Meanwhile £35 million in cash will tide the group over.

The shares fell from 437p to 281p in Spring and a recovery to 391p has petered out, but at 316p they could be of interest to investors looking for recovery possibilities. 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.