GVC (LSE: GVC) is one of my favourite stocks on the London market today. The value this business has been able to create for investors over the past decade is just second to none.
Indeed, according to my figures, the company has produced a total return of 18.9% per annum for shareholders since 2008, that’s enough to turn an initial investment of £10,000 into £56,470, and I believe the group can maintain this track record.
Growing the business
Since inception, GVC has grown through acquisitions, and its most significant deal to date is the purchase of high-street bookmaker Ladbrokes at the end of March. According to a trading update published today, the merger is going well and is now expected to generate savings of £130m per year by 2021, from £100m a year expected previously.
This is not the only bright spot in the update. Total net gaming revenue (NGR) for the period 1 January to 20 May 2018 rose 7%. Online gaming is leading the way with online NGR rising 18% year-on-year in constant currency.
Unfortunately, gaming revenue from GVC’s UK retail business declined 5% thanks to the cancellation of 12% of horse racing fixtures during the opening months of 2018. And while the company notes the new £2 limit on high stakes betting machines will dent income, management is more excited about prospects in the US where the sports betting market is tipped for take-off after a Supreme Court ruling this month. The group is already the leading B2B provider of sportsbook technology in Nevada, giving it a strong base from which to grow into the rest of the US market.
But despite the opportunities in the US market and the merger with Ladbrokes, shares in GVC currently appear undervalued. In 2018 the online gambling giant is predicted to report profit growth of 41%, placing the shares on a forward P/E of 14.1. Meanwhile, the shares support a dividend yield of 3.6%.
So, despite the headwinds to its operations here in the UK, as online gambling continues to gain popularity around the world, I expect shares in GVC will continue to surge.
Cash cow
Another stock that I believe has the potential to make you a million is homebuilder Redrow (LSE: RDW). Over the past 10 years, shares in Redrow have produced a total return of 13.7%, which like GVC has been enough to turn an initial investment into a substantial sum.
And as the company continues to capitalise on the rising demand for affordable housing in the UK, I believe this is set to continue.
As my Foolish colleague Roland Head recently pointed out, Redrow is one of the better bets in the homebuilding sector because the company is managing to offset some of the cost pressure impacting peers. During the first half of this year, the firm said operating profit rose by 22% to £175m, and its operating profit margin rose to 19.7%, compared to 19.5% last year. Other firms in the sector have been reporting contracting margins as cost inflation bites.
Even though Redrow’s profits are still expanding, the share trades on a 2018 forecast P/E of 7 with a forward yield of 4.6%. This yield isn’t as generous as some of its peers, but the payout should be covered 3.3 by earnings for 2018.
