ii view: Entain places big bets both online and in the US

Home to brands such as Ladbrokes, Coral and bwin, we assess prospects for this UK gaming giant. 

First-half results to 30 June 2021

• Online Net Gaming Revenue (NGR) up 28%
• Retail NGR down 46%
• Adjusted earnings (EBITDA) up 12% to £401 million
• Net Debt of £1.95 billion, up from £1.77 billion at year-end 2020

Guidance:

• Continues to expect FY adjusted earnings (EBITDA) to be in the range of £850 million to £900 million
• Hopes to restart the dividend in March 2022

Chief executive Jette Nygaard-Andersen said:

“Entain has a long runway for sustainable growth built into our core business.  In addition, our unique powerful platform puts us at the heart of the convergence of media, entertainment and gaming, providing us with exciting opportunities in interactive entertainment that we believe will further power our growth for many years to come."

ii round-up:

Entain (LSE:ENT) is a major sports-betting and gaming company operating both online and on the High Street.

Its brands include Ladbrokes, bwin, Coral, Sportingbet, Gala, BetMGM and PartyCasino. 

The FTSE 100 constituent is tax resident in the UK with licenses in a total of 27 regulated markets. It operates in the USA via a joint venture with MGM Resorts. 

For a round-up of these latest results, please click here. 

ii view:

Entain owns proprietary technology across all its core product arenas. In addition to its customer operations, it also provides services to a number of third-party customers on a B2B basis. It recently announced it would double investment in its in-house games studios. That's aimed at accelerating and expanding its ability to provide customers with new and exclusive products and experiences.

In early 2021, Entain rejected a takeover bid from its still ongoing US joint venture partner MGM Resorts International (NYSE:MGM) on valuation grounds. US casino operator Caesars Entertainment (NASDAQ:CZR) previously agreed to buy William Hill for $3.7 billion (£2.9 billion).

For investors, tightening gaming regulations such as those introduced in Germany should not be forgotten. An estimated forward price/earnings (PE) ratio comfortably above the 10-year average suggests the shares are not obviously cheap. And the dividend payment remains suspended under pandemic caution. Increasing gaming taxes could also offer a way for financially stretched governments to raise funds to help pay down elevated national debt.  

On the upside, gains in online growth continue to be made, while the company operates a diversified business model. Its US MGM joint venture is the number two operator for sports betting and iGaming across the US with a 22% market share. And despite the dividend remaining suspended, a return to shareholder payouts is expected in March next year. In all, and while a 35%-plus gain in the share price over the last six months provides scope for consolidation, an estimated consensus analyst fair price target of £21.67 implies room for long-term potential appreciation. 

Positives: 

• Diversity of business type and geographical locations
• Launched a cost savings programme

Negatives:

• Increased regulation
• Potential target for raised government taxes globally

The average rating of stock market analysts:

Strong buy