Entain has reported an 11% increase, ignoring the effect of currency moves, in net gaming revenue (NGR). Including the impact of its 50% share in BetMGM, group NGR was up 17%.
Online NGR rose 11%, in line with expectations, as active customer levels reached record levels. Gaming stood out within the Online segment, with a 20% jump in NGR. The Retail segment also performed well, with NGR up 13%.
BetMGM saw NGR rise 76% to around $470m, on track to deliver in line with guidance of $1.8-$2.0bn NGR for the full-year and positive EBITDA in the second half.
The shares rose 2.5% in early trading.
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Our view
The cost-of-living crisis hasn't deterred punters from enjoying a flutter across Entain's suite of brands, which includes Ladbrokes and partypoker to name a couple. First quarter performance was strong, albeit mainly in line with market expectations, with active customer numbers reaching record levels.
Lingering lockdown and Omicron issues in the same period last year flattered comparisons for the Retail division, but growth at the group level was strong nonetheless. Record levels of active customers are a key indicator that the underlying business is moving forward. That's even more impressive when you consider the World Cup at the back end of last year gave a short-term boost to activity that looks to have stuck around.
From here, we expect to see Retail growth cool, as some of those easier comparable periods fade into history. The higher margin online business is where we see the future of Entain, and the fact revenue growth remains, despite the reopening of Retail stores is a positive sign.
BetMGM, Entain's joint venture with US-based MGM, has been a shining light for the group that's expected to start turning a profit over the second half of 2023. Entain estimates the North American sports-betting and iGaming market will be worth approximately $37bn. Continued market share gains and the steady increase in the number of states in which the company operates suggest BetMGM could be in-line for a sizeable chunk of that money.
Debt crept up last year, owing mainly to the group's continued spend on acquisitions. And there's already been more activity over the first quarter with a foray into the New Zealand market and acquisition of a sports statistics tool that should help boost the wider online offering.
At the last check, underlying net debt stood at £2.75bn, or 2.8 times cash profit (EBITDA). That's a touch higher than we'd like to see, given there are increasing demands on cash - the revamped dividend being the latest addition.
Regulation, as ever, is a key risk. The German market remains challenging as a new regulatory regime kicks into action, but its enforcement lacks vigour. The good news for Entain is that they've been granted gaming licences, and the new regulator has signaled an intent to take action against unregulated operators.
UK operations also face challenges, affordability checks introduced last year are a headwind for online revenue, and we're expecting an overhaul to broader regulation at some point this year. UK is still the largest market for Entain, but it's relatively less exposed than some peers, and there's been plenty of time to plan for a range of outcomes. It's something to monitor, but certainly not a derailment of the investment case.
The valuation remains well ahead of the longer-term average. We think its strong brands and growth opportunities underpin the valuation, but it certainly adds extra pressure to deliver - expect some bumps in the road.
Entain key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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