Entain’s overseas ambitions are a runway to longer-term success

Customers are feeling the squeeze, but the gambling firm has announced a new acquisition, seeing it diversify into Europe.

Entain is upping the ante with a further acquisition which boosts its overseas ambitions, while showing strong growth in certain pockets of its business.

Group Net Gaming Revenue (NGR) grew by 18% on the prior year, although the online contribution fell by 7% given strong comparatives against a period where various lockdown restrictions were in place. UK NGR in particular felt some pain with a reduction of 15%, in part due to the delayed 2020 Euros football tournament providing a boost to revenues when it finally took place last year.

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Revenues overall were ahead by 19%, but underlying pre-tax profit fell by 38%. The main culprit for the decline related to foreign exchange losses on the translation of the group’s debt, which is a meaningful factor to consider given the group’s acquisitive strategy. Underlying operating profit, which excludes this translation, grew by 20%, underpinned by a 57% increase in active customers, while a tentative foray into the nascent esports market could provide opportunities further down the line.

Entain (LSE:ENT)’s growing international footprint lessens the reliance on the UK business, which is showing some signs of strain as customers begin to retrench given the tightening economic backdrop and therefore leading to some affordability issues.

Perhaps the largest potential comes from the joint venture in the US with MGM Resorts, under the BetMGM brand. The business has already achieved a market share of 23% and is the number two operator in those areas in which it operates. Half-year NGR rose by 65% to $608 million, with Entain expects to reach $1.3 billion for the year as a whole. In addition, the business is expected to be earnings positive during 2023, and this tailwind of profitability will begin to unlock some of the undoubted potential as parts of the US begin to loosen gaming restrictions.

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At the same time, the Australian business continues its strong growth, with an increase of 19% in NGR, and Entain has recently announced several acquisitions, such as Avid Gaming in Canada and BetCity in the Netherlands. Today also marks the establishment of Entain CEE (Central and Eastern Europe) and the acquisition of SuperSport, a Croatian company with a 54% market share, in a deal which values that company at around €920 million.

The failure of previous bid approaches from both MGM Resorts and DraftKings has held back Entain in terms of its share price, which has fallen by 34% over the last year, as compared to a gain of 4% for the wider FTSE 100. More recently, the price has bounced slightly, having risen by 6% over the last three months, and there are clear chinks of light appearing as the group’s diversification continues apace.

Despite a sector swimming against a rising tide of regulation in the UK, the group’s overseas ambitions provide a potential runway to longer-term success and the market consensus of the shares as a strong buy reflects this, even if it has yet to filter through to the share price.