ii view: Entain rallies as online gaming delivers surprise

Home to an array of betting brands and with a new chief in place. We assess prospects for this FTSE 100 company.

9th September 2024 16:18

by Keith Bowman from interactive investor

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Second-half trading update from 30 June to 6 September

ii round-up:

In an unexpected announcement, Ladbrokes and Coral owner Entain (LSE:ENT) today flagged a return to growth at its UK and Irish online betting business ahead of a third-quarter trading update on 17 October. 

Overall online Net Gaming Revenue (NGR) growth during the second half since late June had proved ahead of management’s expectations, buoyed by stronger volumes and margins at the UK and Irish online sports betting business. 

Shares in the FTSE 100 company rose 5% in UK trading having come into this latest news down by just over a third year-to-date. That’s in contrast to a 15% gain for PaddyPower owner Flutter Entertainment (LSE:FLTR) and a near 6% improvement for the FTSE 100 index in 2024.

As well as brands such as bwin, Sportingbet and Foxy Bingo, Entain also operates a joint venture in the US with MGM Resorts, under the BetMGM brand.

Entain’s international and Central and Eastern European markets continued to perform well, with its high street operations stable. 

The previously announced new chief executive, Gavin Isaacs, began work on 2 September, and will continue to work alongside existing interim head Stella David in order to ensure a smooth transition until 30 September.   

Entain pointed to further progress at its US business, given enhanced NFL player bet offerings at BetMGM ahead of the new football season. 

Broker Morgan Stanley flagged a return to growth at its UK and Irish online business as justification for reiterating its ‘overweight’ stance on the shares.  

ii view:

Previously named GVC Holdings, Entain currently has licenses in over 30 regulated or regulating markets. Competing against rivals such as Paddy Power owner Flutter and William Hill owner Evoke (LSE:EVOK), the UK accounted for 41% of revenue in 2023, followed by the rest of Europe at 30%, Italy and Oceania 11% each and the rest of the world the balance of 7%. 

For investors, problem gambling for some customers and potential changes in government regulation remain a worry. Adverse sporting results can impact profit margins. Costs for businesses generally are now elevated, intense competition in its US market is not to be dismissed, while group net debt of £3.33 billion, as of late June, compares to a stock market value of £4.4 billion.  

More favourably, a return to revenue growth at its core UK and Irish online business is a significant positive. New head Gavin Isaacs will be looking to inject renewed vigour into Entain’s performance. Cost savings of £100 million are targeted by 2026, while a forecast dividend yield of around 2.8% compares to a zero payout at major rival Flutter.

In all, more cautious investors are still likely to demand firmer evidence of recovery before adding to any existing shareholdings. That said, a consensus analyst estimate of fair value above 900p could grab the interest of more speculative investors willing to back a share price recovery.  

Positives: 

  • Diversity of business type and geographical locations
  • New CEO

Negatives:

  • Uncertain consumer outlook
  • Potential for increased regulation

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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