Interactive Investor

ii view: Ladbrokes owner Entain shares profits surprise

8th July 2021 15:42

Keith Bowman from interactive investor

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Growing online and overseas, is this sports and gaming giant worth a punt? We assess prospects. 
 

First-half trading update to 30 June

  • Total Net Gaming Revenue (NGR) up 11%

Guidance:

  • Now expects adjusted earnings (EBITDA) to be in the range of £850 million to £900 million

Chief executive Jette Nygaard-Andersen said:

"We have delivered another strong performance across the Group.  Our diversified business model has enabled us to grow our business in all key markets while navigating channel and product mix changes as retail re-opens and we annualise last year's restricted sports calendar.”

ii round-up:

Online and high street bookie Entain (LSE:ENT) today raised its full-year profit estimate as it delivered Net Gaming Revenue (NGR) growth of 11% over the first half and growth of 42% over the second quarter.

The owner of the Ladbrokes brand now expects full-year adjusted profit of between £850 million and £900 million, around 6% ahead of current analyst estimates at the midpoint. 

Entain shares rose marginally in UK trading, having already gained by more than 400% since pandemic lows in March 2020. Shares for rival 888 Holdings (LSE:888) are up by 360%. 

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

Online NGR for the second-quarter period rose by 22% compared to Q2 last year, aided by sports betting and given limited sports activity during the second quarter of 2020.

In tandem with the trading update, Entain also announced a doubling in investment at its in-house games studios. The investment is aimed at accelerating and expanding its ability to provide customers with new and exclusive products and experiences.

Both a strategic update and first half results are scheduled for 12 August. 

ii view:

Entain sports betting and gaming brands include bwin, Coral, Ladbrokes, Sportingbet, Gala, and PartyCasino. Countries in which it operates have been expanded in recent years and now include Germany, Spain, Portugal. It also operates in the USA with partner MGM Resorts International under the BetMGM brand. It has operations in nearly 30 countries including the UK. 

For investors, an estimated forward price/earnings (PE) ratio comfortably above the 10-year average suggests the shares are not obviously cheap. Tightening gaming regulations such as those introduced in Germany should not be overlooked and the dividend payment is, for now, still suspended under pandemic caution. 

But 22 consecutive quarters of double-digit online NGR growth is impressive, and its US MGM partner business is the number two operator for sports betting and iGaming across the US, with a 21% market share. Even a modest forecast dividend yield of over 1.5% is also an addition in an era of ultra-low interest rates. In all, and with analysts estimating a fair value target price of £19.58 per share, there looks to be scope for further long-term appreciation. 

Positives: 

  • Diversity of business type and geographical locations
  • Investing in growing operations

Negatives:

  • Increased regulation
  • Potential target for raised government taxes globally

The average rating of stock market analysts:

Strong 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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