Directors take a £2.4m punt on Entain shares

Entain (LSE:ENT) directors have staked £2.4 million of their own money backing the Ladbrokes and BetMGM business to deliver the benefits of a recently refreshed strategy.

The buyers included chief executive Jette Nygaard-Andersen, whose investment of £325,000 took place yesterday when shares traded near to their low for the year at 927p.

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The FTSE 100 stock rallied as far as 985p following today’s disclosure of the insider dealings, which also included £1 million of purchases connected to chair Barry Gibson.

Senior independent director Stella David bought £870,000 worth of shares and a fourth director, non-executive Rahul Welde, spent £200,000 in support of the company.

Their moves were made a week after Nygaard-Andersen told the City of her strategy for cementing Entain as customer-focused industry leader with “enhanced returns for all our stakeholders”.

Her plans target higher return markets in the US, Brazil, Central Europe and New Zealand, alongside growth in core markets such as the UK and Australia. This will mean the exit from some non-core operations.

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In the US, where the company trades through the BetMGM joint venture, the ambition is a 20%-25% market share through investment in product and pricing. Cost efficiencies are also set to contribute to an improved online margin of 28% by 2026 and 30% by 2028.

Nygaard-Andersen said: “Entain has undergone a profound transformation over the last few years, and now has strong foundations from which to move into its next phase of growth.

“We have made significant investments in responsible gambling initiatives. While these steps have impacted earnings, they are unquestionably the right thing to do to improve our long-term prospects.”

Her comments were made alongside a third-quarter update showing a tough October for the group after customers benefited from some favourable sporting results.

This prompted Peel Hunt to cut its 2023 earnings forecast by 14%, but the broker remains a supporter of the stock after today highlighting a 1,300p price target.

It said: “Entain’s supermarket sweep of M&A is over. Management will now focus on payback. It makes sense to shore up BetMGM with investment. In 12 months, we believe Entain will clearly be taking share of a growing industry.”

The broker said it agreed with Entain that the worst of the regulatory headwinds and tax increases are over, but that this is unlikely to be evident until the middle of next year.

Deutsche Bank called last week’s update action-packed, with data to point to steadily rising earnings margins and a reversion to growth from the second half of 2024.

However, it said it was ironic that the announcement was made on the day Lottomatica Group SpA (MTA:LTMC) acquired SKS365 in Italy, a 639 million euros (£556 million) deal that it believed Entain could and should have done to scale up in that market.

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The bank said Entain no longer has the balance sheet to fund such a deal: “The cupboard is bare, and leverage isn't coming down until 2025, so in a consolidating market, Entain looks somewhat hamstrung.”

The bank has a target price of 1,220p,. Jefferies recently highlighted an upside to 1,335p, adding that it did not expect a change to the company’s 30% dividend payout ratio.

In June, Entain launched a discounted share placing at a price of 1,230p to part-fund its acquisition of Poland’s leading sports betting firm STS Holdings.

The subsequent slump in value “outraged” one of its major shareholders as New York’s Eminence Capital called the board’s approach “perplexing on many levels”.

Entain said expansion in Central and Eastern Europe was a key part of its growth plan and that STS was an attractive asset in a high-growth regulated market.