Shares in online gambling provider GVC (GVC:AIM) could rise by more than 40% in 12 months, according to analysts. Such a gain would provide investors with attractive capital appreciation on top of an already generous dividend stream.

The £157 million cap is primed for a rerating driven by efforts to cut costs out of assets acquired from Sportingbet (SBT). Its task is to get the loss-making Sportingbet operations to break-even within the next 12 months and sustain the strong growth momentum generated by its existing operations.

GVC looks cheap relative to its impressive earnings growth profile. It trades on 6.9 times forecast earnings for 2013 and 4.7 times 2014 estimates. House broker Daniel Stewart sees the share price hitting 368p in 12 months’ time and 457p by the end of 2014. It reckons pre-tax profit will jump from £10.7 million in 2012 to £24.4 million this year and £41.6 million in 2014.

The business is highly cash-generative and pays a minimum 75% of net operating cashflow in dividends. Having temporarily altered the pace of dividends during the acquisition of the Sportingbet assets - the deal completed on 19 March - GVC says it will recommence quarterly payments from November. A forecast payout of 26c (22p) in 2013 equates to an 8.6% yield.

GVC has inherited the ParadisePoker brand from Sportingbet, one of the biggest names in US online gambling until the market shut up shop in 2006. With growing signs the US market is about to reopen, the brand suddenly has enhanced value. GVC says it has no intentions of going to the US, so a brand sale could be on the cards.

Shares says: Buy GVC at 256.5p.