ii view: Ladbrokes owner Entain keeps falling after guidance cut

Despite a US joint venture, shares for this major betting operator are down more than a third year-to-date. We assess prospects. 

Second-quarter trading update to 30 June

• Total group currency adjusted net gaming revenue (NGR) up 6%
• Online currency adjusted NGR down 8% 

Guidance:

• Full-year online NGR now expected to be flat, down from growth of mid to high single digit

ii round-up:

Ladbrokes owner Entain (LSE:ENT) today cut its expectation for full-year online Net Gaming Revenue (NGR) growth to flat from a previous gain of mid to high single digits, due to the weaker economic environment.

Overall currency adjusted NGR for the second quarter to the end of June, and including its high street bookies, came in up 6%. For its purely online business, currency adjusted NGR fell 8% during the quarter, worse than the 6% fall in Q1. 

Entain shares fell by as much as 8% in UK trading, leaving them down by nearly 40% year-to-date. Shares for larger rival Flutter Entertainment (LSE:FLTR), owner of the Paddy Power brand, are down by close to a third, while the FTSE All World index has retreated by a fifth. 

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Along with other brands such as Sportingbet, Gala, and PartyCasino, Entain also operates a joint venture in the US with MGM Resorts (NYSE:MGM) under the BetMGM brand. 

Customer activity levels across the group achieved a record during the quarter, rising 60% since the same pre-pandemic quarter back in 2019. However, revenue performance continued to reflect tough 2021 comparators, driven by Covid lockdowns and the implementation of tighter affordability measures in the UK. 

The performance of its US joint venture BetMGM was summarised as in line by management. It continues to forecast positive adjusted earnings (EBITDA) during 2023, helped by an established number two market position and a market share of 24%.  

Group first-half results are scheduled for 11 August. 

ii view:

Founded in 2004 and formerly known as GVC Holdings, today Entain operates both sports betting and gaming both online and on the High Street. A constituent of the FTSE 100 index, it is a tax resident in the UK with licenses in more than 30 regulated markets. 

At the start of 2021, Entain rejected an all-share $11 billion offer from BetMGM co-partner MGM Resorts on the grounds that it significantly undervalued the company. A bid from US rival DraftKings Inc (NASDAQ:DKNG) was also made but subsequently withdrawn. Other recent sector M&A activity has included rival 888 Holdings (LSE:888) buying the overseas operations of William Hill, including its UK high street outlets.  

For investors, a cost squeezed consumer with potentially less free cash to gamble needs to be remembered. So does the issue of problem gaming and addiction. Tighter gaming regulations such as those introduced in Germany also warrant consideration, with rules in the UK also under review.  

More favourably, a diversity of brand names, products, and geographical markets are enjoyed, including the USA via its joint venture. Bolt-on acquisitions are being made, with four done year-to-date, while there are hopes that the dividend payment could soon restart. In all, Entain is expanding and looking broadly well positioned, but with the shares in freefall, nervous investors will be watching the £10 level as an area of key psychological support. 

Positives: 

• Diversity of business type and geographical locations
• Previously the target of takeover bids

Negatives:

• Uncertain consumer outlook
• Potential for increased regulation

The average rating of stock market analysts:

Strong buy