Time to gamble on FTSE 100's Entain?

Shares have halved in the past year, and while there are plenty of potential positive catalysts, investors clearly feel reluctant to bet on this blue-chip firm just yet.

While Entain (LSE:ENT)’s customers continue to gamble on the now, investors are taking a long-term view on the sports betting and gaming firm.

The group benefits from ever-improving products, a range of well-known brands including but not limited to Ladbrokes and Coral, and geographical diversity with the potential from further growth.

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Active customers have risen by 6% to record levels in the third quarter, group Net Gaming Revenue (NGR) is up by 2%, underpinned by Retail NGR which is up by 10%, and by 8% against pre-pandemic levels, implying something of a return to the betting shop.

Entain has been acquisitive and will shortly launch its CEE (Central and Eastern Europe) business, bolstered most recently by the purchases of BetCity of the Netherlands and SuperSport of Croatia, which should all fall into place in the final quarter of the year. This added footprint will lessen its reliance on the more traditional UK business, while also riding the coattails of a growing CEE market.

In terms of overseas presence, perhaps the most exciting driver for potential growth is the company’s joint venture with MGM Resorts International (NYSE:MGM), in the form of BetMGM. In the US markets in which it operates, the venture has a 23% market share in an overall market which the group expects to reach over $35 billion of revenue. The company is therefore strongly placed to benefit from such growth, as various states within the US continue to loosen restrictions.

In the meantime, Entain expects the venture to become earnings positive next year and for full-year NGR of $1.3 billion this year. The start of the NFL season has already seen an increase of 90% in Q3 NGR, while the online sports-betting market is also progressing well.

On home shores, tough comparisons remain for the online business until the lockdown boost to revenues finally falls away. Interestingly, the retail business has shown some strong signs of resurgence, with total NGR up by 10% in the quarter and by 102% in the year to date. The football World Cup, which begins next month, will provide further opportunities, leading the group to maintain its previous earnings guidance for the full year.

For all the progress, Entain has been unable to shake off the shackles of some factors working against it. The most pressing concern is inevitably the consumer’s propensity to spend, given the wider economic picture, and whether the cost of living crisis will simply evaporate some of the revenues which may otherwise have come Entain’s way.

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In addition, the spectre of regulation is a constant threat, with problem gambling being an easy political target in any of the jurisdictions in which the group operates.

Two rebuffed acquisition attempts has also taken some of the wind from the sails of the company, with the result that Entain shares have declined by 47% over the last year, as compared to a dip of 4.4% for the wider FTSE100. Even so, over the last three years the shares remain ahead by 35% and, with a clear strategic runway full of growth opportunities, the market consensus of the shares as a 'strong buy' reflects real optimism in the group’s prospects.