ii view: revenues rally for takeover target Entain

UK volumes for its UK high street outlets have recovered towards pre-pandemic levels. We assess prospects. 

Third-quarter trading update to 30 September

• Group total net gaming revenue (NGR) up 4%
• Online NGR up 10% - Retail NGR up 1%

Guidance:

• Expects full year adjusted profit (EBITDA) to be in line with previous guidance of £850 million to £900 million

ii round-up:

Ladbrokes and bwin owner Entain (LSE:ENT) today detailed a 4% increase in net gaming revenue (NGR) as UK volumes for its UK high street outlets recovered towards pre-pandemic levels. 

Shop, or retail NGR, rose by 1% for the bookie which is now the $22 billion takeover target of US rival DraftKings (NASDAQ:DKNG). Online NGR gained by 10%, marking for a 23rd consecutive quarter of double-digit currency adjusted growth. Full-year profit guidance was left unchanged at a range between £850 million to £900 million. 

Entain shares drifted marginally lower in UK trading, having almost doubled over the last 12 months. Earlier in the year, US company Caesars Entertainment (NASDAQ:CZR) completed a £2.9 billion takeover of William Hill. 

At the start of 2021, Entain rejected an all-share $11 billion offer from its US business partner MGM Resorts on the grounds that it significantly undervalued the company. MGM Resorts remains Entain’s US joint venture partner. 

Entain flagged a 23% market share for its BetMGM joint venture during the quarter. The dual business now operates in 16 jurisdictions, with recent launches in Arizona, Wyoming and South Dakota. 

Entain management reiterated the potential for its total addressable market to grow by more than three times to $160 billion. 

DraftKings' offer sits at £28 per share. It consists of £6.30 in cash and the balance made up of DraftKings shares. Entain management continues to consider the deal. 

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 a total of 27 regulated markets. It operates in the USA via a joint venture with MGM Resorts. 

For investors, problem gambling is an issue which critics are keen to promote and address. Tightening gaming regulations such as those introduced in Germany also need to be remembered. Entain’s current joint venture with MGM also asks questions as to how a potential deal with DraftKings would work.

But 23 consecutive quarters of double-digit online revenue growth implies growth momentum, and the MGM tie-up is the number two operator for sports betting and iGaming across the US, with a 23% market share. In all, and with the share price up by close to 500% since pandemic market lows in March 2020, Entain management advice to sit tight and take no action looks to remain sensible.  

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:

Buy