Entain’s underlying net gaming revenue (NGR) was flat at £2.6bn. Second quarter growth offset first quarter weakness. Business received a boost from the Euros and positive regulatory developments in Brazil being rolled out faster than expected.
Underlying cash profit (EBITDA) was up 5% to £524mn, but operating profit fell 6% to £388mn reflecting higher non-cash charges and an increased share of losses from its US joint venture BetMGM.
Free cash flow fell from £191mn to £122mn driven by higher interest payments. Underlying net debt of £3.3bn was £0.7bn higher.
Guidance for full-year NGR performance has been upgraded from a small decline to a small increase. Underlying cash profit is expected to land between £1.0bn to £1.1bn.
Entain has proposed a 5% increase in the interim dividend to 8.3p per share.
The shares were up 6.9% following the announcement.
Our view
A decent set of first-half results and a bump to full-year guidance have given a much-needed boost to investor sentiment following an earlier profit warning from its US joint venture BetMGM. The biggest contributor to profits in the core business remains the UK & Ireland, where tighter gambling regulations introduced last year are still weighing on performance. Over time, the comparatives will become easier, and there are some signs that marketing and product development efforts are driving more players to Entain’s online betting and gaming websites.
The domestic market is relatively mature, and growth may never shoot the lights out. But there are more exciting opportunities overseas. One such example is Brazil, the fastest-growing market outside the United States. Entain is already well established in the football-obsessed nation and was an early applicant for a license in a new regulatory framework. This opens up new commercial opportunities and creates a barrier to entry. Nonetheless, competition in Brazil is still likely to intensify.
We welcome the move to exit non-core unregulated markets like Chile and Peru, allowing investment to focus on high-growth areas like the US and Brazil, along with the core regions like the UK.
Margin expansion is also on the cards, with 'Project Romer' on track to deliver £70mn of annualised cost savings to the online operation by 2025 (c.6% of 2023 operating costs), rising to £100mn by 2026. These initiatives sound great, but we're not getting too excited until some results come through.
Entain’s hope of cracking the US rests with its joint-venture BetMGM. It's taking a bit longer than expected to reach profitability as it spends heavily on marketing to gain a foothold in this relatively immature but potentially huge market for online betting and gaming.
BetMGM’s now live in Nevada, the home of Las Vegas, making it the only top three operator with a licensed app in the state. We see a lot of room to run in this market, but it's starting to run up against tougher competition - so it's an area to follow closely. While there are some signs that it’s starting to get the most out of its marketing dollars, it will take some time before it can claim that the investment was worthwhile.
Entain’s been under pressure of late and the valuation now reflects that reality. We can understand the sentiment, with regulatory headwinds, changes at the helm, and increased US competition. With a longer-term view, we feel the growth prospects are being overlooked, and the opportunity in the US will come through over time - though there are no guarantees.
Environmental, social and governance (ESG) risk
Consumer services companies are medium risk in terms of ESG, and very few companies excel at managing them. That leaves plenty of opportunity for forward-thinking firms. Product governance concerns are a primary driver of this risk, along with the environmental and social impact of those products and services. Additional material issues to the industry are resource use and waste, and labour relations.
Entain’s overall management of material ESG issues is strong.
Entain has established a board-level ESG committee overseeing issues like safer betting, regulatory compliance, and anti-bribery. The company has strong policies on responsible gambling, anti-bribery, and whistleblowing, but needs improvement in responsible marketing, data privacy, and political involvement.
Entain key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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.
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