I have been a long-time investor in GVC (LSE: GVC). It is a small cap thathas caught my eye because it is a growing company which looks good value, with a 2015P/E ratio of 8.16, and a 2016 P/E ratio of just 7.74. That is an absolute bargain, considering the fact that this business is growing at a rate of knots.
GVC has a stonking dividend yield
Throw in a dividend yield of 9.22%, rising to 10.36%, and most investors can see this company is a no-brainer of a buy. This is abusiness thatis churning out cash, most of which is turning into dividends. And it has hardly any debt.
Online betting is a huge and growing industry with a bright future. However, this optimistic picture is tempered by increasing regulation and taxation in the industry. Yet GVC, which owns the sportingbet brand, has been seen as one of the long-term winners in this sector.
All this means that, when I heard GVC was bidding for bwinparty digital entertainment (LSE: BPTY), I had mixed feelings. Compare the market capitalisations and the valuations and you will understand my concerns.
GVC is worth 266 million compared to bwins 963 million. But while GVC has a single-digit P/E ratio, bwins 2015 P/E ratio is 23.28, and its 2016 P/E ratio is 22.57, with a dividend yield of 2.62% rising to 2.82%.
Much of bwins value is in its brands: bwin, partypoker, Foxy Bingo and InterTrader. This firms strength is the booming online gaming sector, and this issomething which GVC wantsa slice of.
And Im just wondering if the bwin bid is a little too much excitement
The trouble is rival firm 888 has already made a bid, which means that we have a takeover battle. 888s bid valued the company at 900 million. But GVC is trying to gazump the firm with a 1.03 billion offer in cash and shares.
If GVC succeeds, it would be a transformational deal, and the business would be one of the worldsmost innovativeonline entertainment companies, combining online betting and gaming and producing an estimated 95.6 million in synergies.
I think the trend in gaming apps is only just getting under way, and I have always felt thatinvesting inGVC was a great wayto buy into this trend. By going all in with its bid for bwin, GVC is showing it means business. This is a very audacious bid;but, given GVCs track record in making acquisitions work, I think it can pull it off.
However, I just wonder whether many GVC shareholders might just be hoping thatthe dealfalls through.Thenwe could settle back intowatching the share price steadilyrise, and the dividend cheques roll in.
You see, Irather like the quiet life.
Growth companies like GVC can make all the difference to your portfolio. If you love the adrenaline rush, the buzz, and the better returns, of small caps then we have written a FREE report which might be just up your street.
Want to learn more? Well, just click on this link to read “1 Top Small-Cap Stock From The Motley Fool” and it will be dispatched to your inbox, free and without obligation.
Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.