ii view: Ladbrokes owner Entain bets on bigger profits

Pandemic comparatives are evident, but its US joint venture is going well. We assess prospects.

Fourth-quarter trading update to 31 December

• Total group currency adjusted net gaming revenue (NGR) up 6%
• Online currency adjusted NGR down 6% 
• Retail NGR up 62%

Guidance:

• Expects full-year adjusted profit (EBITDA) of between £875 million to £885 million, from a previous £850 million to £900 million

ii round-up:

Ladbrokes and bwin owner Entain (LSE:ENT) today reported a 6% fall in online net gaming revenue (NGR), ending more than 20 consecutive quarters of growth, but did increase its full-year profit guidance. 

Pandemic fuelled comparatives provided the backdrop for this fourth-quarter update. The fall in online NGR was more than counterbalanced by open high street outlets compared to largely shuttered stores this time last year. Currency adjusted retail NGR jumped by 62%, helping to push full-year adjusted profit guidance to between £875 million to £885 million, from £850 million to £900 million previously.

Entain shares were little changed in early UK trading, having risen by 37% over the last year and by over 350% since pandemic lows in March 2020. That compares to gains for the FTSE 100 index of 13% and 52% respectively. Shares for sector giant Flutter Entertainment (LSE:FLTR), the owner of Paddy Power, are up by around 75% since the Covid crash. 

The fall in Entain online NGR was better than analysts had hoped for and followed an encouraging update on its joint US venture, BetMGM, the day before. 

BetMGM is now forecast by management to generate net revenue of over $1.3 billion in 2022. The venture is trading in 19 jurisdictions, including four in iGaming and 19 in sports betting and is expected to reach around 40% of the US adult population.

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At the start of 2021, Entain rejected an all-share $11 billion offer from BetMGM co-partner MGM Resorts International (NYSE:MGM) on the grounds that it significantly undervalued the company. A bid from US rival DraftKings (NASDAQ:DKNG) was also made but subsequently withdrawn.

2021 also saw other sector M&A activity including rival 888 Holdings (LSE:888) buying the overseas operations of William Hill, including its UK high street outlets. 

Entain 2021 full-year results are scheduled for 3 March.    

ii view:

Sports-betting and gaming company Entain operates both online and on the High Street. Its brands include Ladbrokes, Sportingbet, Gala, BetMGM and PartyCasino. The FTSE 100 constituent is tax resident in the UK with licenses in more than 25 regulated markets. It operates in the USA via a joint venture with MGM Resorts. 

For investors, problem gambling remains an issue for the wider industry which critics are keen to promote and address. Tightening gaming regulations such as those introduced in Germany also need to be remembered. However, growth momentum remains and its US MGM joint venture business is the number two operator for sports betting and iGaming across the US. There are also hopes that the dividend payment will start again soon. In all, and with growth ongoing and sector M&A still a feature, long-term investors are likely to stay patient.

Positives: 

• Diversity of business type and geographical locations
• Hopes to restart the dividend in March 2022

Negatives:

• Increased regulation
• Potential target for raised government taxes globally

The average rating of stock market analysts:

Strong buy