Interactive Investor

Investors make flurry of bets on the big bookies

Our stocks writer takes a look at the action with the big FTSE-listed betting firms.

12th August 2021 13:55

Graeme Evans from interactive investor

Our stocks writer takes a look at the action with the big FTSE-listed betting firms.

The flurry of bets on blue-chip gambling stocks has continued this week as investors speculate on the future roles of Entain (LSE:ENT) and Flutter Entertainment (LSE:FLTR) in the fast-growing US gaming sector.

Ladbrokes and Coral owner Entain is up 8% over the past week as attention focuses on a possible takeover by casinos giant MGM Resorts, while Paddy Power and Betfair firm Flutter is up 18% over the same period after revealing it is on course for US profitability by 2023.

Entain's shares were at a record high of almost 2,000p on Tuesday, but succumbed to some profit taking in the wake of today's half-year results, despite confirming recent guidance for full-year earnings in the range of £850 million and £900 million.

Entain said BetMGM, the group's joint venture in the US with MGM Resorts, continues to perform strongly and is now the second largest operator for sports betting and iGaming across the US with a market share at 22%.

New Entain boss Jette Nygaard-Andersen, who set out the company's growth opportunities in a presentation to investors this afternoon, expects the joint venture to be operating in around 20 US states, representing 33% of the adult population, over the next 12 months.

She added that Entain had a “long runway for sustainable growth” built into its core business, including opportunities driven through the convergence of media, entertainment and gaming.

Net gaming revenues rose 11% in the first half of the year, including a 22nd consecutive quarter of double-digit online growth after a full sporting calendar and longer lockdown restrictions in the retail estate contributed to a 28% rise in the past half year.

Temporary, pandemic-related closures of Ladbrokes and Coral shops meant retail revenues were down 46%.

The group, whose portfolio of brands also includes Eurobet, Sportingbet, Foxy Bingo, Optibet, partypoker and PartyCasino, reported an overall 12% rise in underlying earnings to £401 million. It also hopes to restart dividend payments with full-year results in March.

Despite the recent strong share price performance, analysts at Peel Hunt reiterated their “buy” recommendation and increased their target price by 100p to 2,300p “not least because of the possibility of renewed interest from MGM”.

In January, Entain's board rejected a bid proposal from the Las Vegas-based casino giant valuing the London-listed business at 1,383p a share or £8.1 billion. However, speculation has resurfaced after MGM bolstered its finances with a multi-billion dollar property deal.

Peel Hunt also sees further upside for shares in Flutter Entertainment, whose FanDuel business is the largest in America's online sports betting industry as results this week showed half-year revenues growth of 159% to £652 million.

During the second quarter, FanDuel was live in 10 states including Colorado and Illinois and expects to be in 19 within the next 18 months as more states regulate the industry. Flutter claimed a 45% market share in those states where it operated in the quarter.

Peel upgraded its 2021 earnings forecast by 20% in the wake of the results, while it also increased its target price to 17,000p from 14,800p previously. Shares were today at 14,250p, compared with the record high of 16,915p seen in March.

The broker said: “We have got so used to companies in the US sports betting and online gaming business talking about “investment”  in marketing to grow, we had almost forgotten that the point is to make a profit.

“Flutter’s presentation showed it will be hard for it not to be profitable in the US, and cash generative, in 2023.” Bank of America and Deutsche Bank also have “buy” recommendations, with price targets of 19,000p and 17,004p respectively.

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.