Interactive Investor

Hedging its bets pays off for Entain

21st January 2021 10:56

Richard Hunter from interactive investor

Bookmaker helped by pivot to online gambling and the US, but more regulation looms.

Bookmakers Entain (LSE:ENT) has hedged its bets strategically, which has paid off handsomely over the last year, according to its Q4 2020 trading update today.

Where sporting events were cancelled during the initial pandemic lockdown, some of the slack was taken up by its alternative offerings such as bingo and poker. In addition, where the Ladbrokes and Coral estate was shuttered at the same time, the online offering came into its own.

Nor is the company reliant on any particular geography, and this additional diversification has also played its part, most strikingly in its BetMGM joint venture with MGM Resorts.

MGM may have decided to abandon its rebuffed £8.1 billion pursuit of Entain, but there are no hard feelings.

Indeed, a market which is estimated to be worth around $20 billion (£14.5 billion) by 2025 is one worthy of hot pursuit.

The early indications from the joint venture are extremely positive. Now live in 11 US states with a market share of 18%, online revenues have already grown 130%.

Back at the half-year results, Entain estimated top-end revenues for the year of $130 million, raised to $160 million at Q3 and now lifted again to $180 million.

Elsewhere, and aside from the takeover approach, Entain has made acquisitions of its own, with Bet of Portugal and Enlabs of the Baltics (soon to expand into the Nordics) further widening its footprint.

The effects of the pandemic have been most sharply felt in the UK and Europe, where store closures have resulted in net gaming revenue declines for the year of 36% and 38% respectively.

However, online revenues rose 27% in that period (and 41% in the fourth quarter), all but offsetting the damage. An earnings upgrade has also underlined the company’s confidence in the longer-term outlook for its prospects.

More broadly, the note of caution may be that in this industry, regulation is never far away. There is a particular drive at present for responsible gambling, which in the UK has recently manifested itself in the form of the £2 limit on fixed odds betting terminals and the removal of credit card gambling. Meanwhile, the Gambling Act Review poses further questions.

For the moment, however, the regulatory waters are relatively calm, particularly in the burgeoning US market.

The lightning pace of development which surrounds this stock is reflected in a share price, which is up 292% since its March low. It is down 14% since MGM Resorts retreated just a few days ago and up 42% over the last year, as compared to a decline of 11% for the wider FTSE 100.

Perhaps such a roller-coaster performance is appropriate given the nature of the industry, but from an investment perspective investors are clearly willing to take the bet, with the market consensus still coming in at a strong ‘buy’.

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