Interactive Investor

Insider: big bets placed on FTSE 100 stock and a £1bn AIM firm

19th June 2023 08:04

by Graeme Evans from interactive investor

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Both these companies have done well in recent years, and a dip in price has triggered a rush of director share buying. Our City writer runs through the deals.

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    Entain (LSE:ENT) directors have spent £388,000 in support of shares after the gaming giant’s dealmaking moves in central Europe caused a £650 million slump in market value.

    Chief executive Jette Nygaard-Andersen led the buying on Thursday at a price 1,210p, which compared with 1,322p prior to the FTSE 100-listed company launching a discounted share placing to part-fund its acquisition of Poland’s leading sports betting firm.

    The new shares equivalent to 8% of Entain’s market capitalisation were placed with City investors at 1,230p as the Ladbrokes owner generated £450 million towards the STS Holdings deal and a further £150 million for other acquisitions.

    Shares fell as far as 1,180p following the fundraising, with the 8% or £650 million slump in market value only £100 million short of the overall price proposed for STS.

    New York’s Eminence Capital, which holds 2.1% of Entain shares, wrote to the company on Friday saying it was “outraged” by the slump in valuation and calling the board’s approach “perplexing on many levels”.

    Highlighting Entain’s own rejection of takeovers at materially higher prices, it said it was illogical to then “issue equity at depressed prices for an asset that is at best a ‘nice to have’”.

    Entain, which has not commented on the letter, said expansion in Central and Eastern Europe (CEE) was a key part of its growth plan and that STS was an attractive asset in a high-growth regulated market. It expects the deal to be earnings accretive in its first full year.

    STS is set to be the second market leader bought by the company’s CEE joint venture, following on from the acquisition of SuperSport in Croatia.

    Analysts at Peel Hunt, who have a target price of 1,900p, said there was scope for more deals in the region: “The acquisition is more than just another bolt-on. it adds to a string of smart, diversifying deals and boosts our confidence that Entain can recycle its cash flow efficiently.”

    JP Morgan Cazenove said that buying an asset valued at 11 times forward earnings looked expensive at first glance, but that the rationale for the move was explained in the attractive growth and consolidation opportunities.

    It said: “We are pleased with the announcement overall, resulting in Entain gradually diversifying away from more mature markets, investing in the next leg of growth through further consolidation of the CEE market.”

    Entain’s other brands include Coral, Foxy Bingo, Gala and PartyPoker, as well as a 50% stake in the BetMGM joint venture as number three player in the rapidly growing US gaming market. In April’s first quarter update, the company said net gaming revenues when including the US joint venture rose 17% on a constant currency basis.

    Shares closed the week at 1,221p, having rallied 2% in Friday’s session after the disclosure of the boardroom purchases. The stock had been more than 1,550p in early February and above 2,000p during the pandemic-linked trading boom at the end of 2021.

    Nygaard-Andersen, who joined the board in December 2019 and became chief executive in January 2021, spent £247,865 on shares. Purchases worth £40,000 linked to chair Barry Gibson were made on Wednesday, while senior non-executive director Stella David spent £100,000 on Thursday. The prices were between 1,207p and 1,211p.

    A clever purchase?

    The boss of Smart Metering Systems (LSE:SMS) has made another big purchase of shares after the £1 billion AIM stock traded at its lowest level since last October.

    Tim Mortlock, who was appointed chief executive in March 2022, followed April’s £120,000 investment with one on Thursday worth £50,000. The latest purchase was at a price of 733.1p, which compared with 2023’s high of more than 900p in February.

    The Glasgow-based company installed 480,000 smart meters last year and is also rolling out battery energy storage systems that can boost the transition to clean energy.

    It is among the top 10 largest dividend payers on AIM, having distributed £37.6 million in 2022 as part of a policy that will see it increase the payout 10% year-on-year until 2024.

    The dividend, which is covered by long-term, sustainable cash flows generated from its metering, data and grid-scale battery assets, is split into four equal quarterly instalments. The final one from 2022’s total of 30.25p is due to be paid on 27 July.

    The company’s results in March showed a 25% rise in revenues to £135.5 million and underlying profits up by a third to £24.5 million. At the time, broker Liberum maintained its “buy” recommendation and target price of 1,185p after highlighting the defensive nature of the business and the inflation linkage.

    Peel Hunt added: “We believe the substantial contracted pipeline of 2.17 million smart meters combined with strong liquidity should enable material earnings growth over the next few years.”

    As well as the purchase by Mortlock, chief financial officer Gail Blain spent £20,000 on shares at a price of 735.5p on Friday.

    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.

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