Companies: GVC   

For investors wanting to get into online gambling but worried about US risk, German-focused Gaming VC could be for you, especially as it will yield 9.4% once it pays its 21p final dividend.

GVC owns the leading online casino in German-speaking markets, using direct mail as well as online marketing to win and retain customers. It appears to be working, as the company achieved its stated aim of an average gain of 2% per month of revenue growth over the period. Furthermore, between the last quarter of ’05 and the first of ’06 new registrations increased 32% to 14,777 and the average daily wager by 8% to €4.3m.

The company does not accept wagers from US residents, so to help compensate for the lack of the biggest online gambling market in the world, GVC is dipping a toe in online poker as well as Spanish and Russian markets. Experienced US chief executive Steve Barlow seems particularly bullish on the latter, where players are signing up before any marketing spend: ‘There are no online competitors of substance in Russia and we have a good local partner. It’s a cash-based economy and they love gaming.’

For the 12 months to December 2005 GVC posted pre-tax profits of €12.8m (£8.9m) profits on €40.4m turnover. The full dividend will be 42p. €7.2 cash in the coffers more than allows for the payment, which Barlow says is ‘sustainable going forward’.

Company broker Collins Stewart forecasts €44.7m sales and pre-goodwill profit of €19.5m, equating to EPS of 42.6p at the current exchange rate, and a full year dividend of 42p. A p/e of 10.5 is cheap, but if that and a lofty yield aren’t enough, GVC is also seen by many as a likely bid target. Buy.