Entian’s net gaming revenue (NGR) growth in the third quarter has been ahead of management’s expectations so far. That’s been helped by UK & Ireland online revenue returning to growth earlier than anticipated.
There were no changes to full-year guidance of a small increase in underlying NGR, and cash profit (EBITDA) to land between £1.04-£1.09bn. Full third-quarter trading details are expected on 17 October.
The shares were up 4.8% following the announcement.
Our view
Investor sentiment towards Entain has received an additional boost from a positive update on trading, despite the absence of a further upgrade to guidance.
The biggest contributor to profits in the core business remains the UK & Ireland, where tighter gambling regulations have been weighing on performance. Over time, the comparatives will become easier, and there are growing signs that marketing and product development efforts are driving more players to Entain’s betting and gaming websites.
However regulatory changes remain a risk and not something that can always be predicted. Unfavourable sporting results can also cause financial results to disappoint, regardless of strategic progress and economic conditions.
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 here 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, 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. 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 looks to be overcoming recent challenges and there are some attractive growth prospects to go for, particularly in overseas markets. However, Entain’s valuation has enjoyed a substantial recovery of late, which leaves the stock vulnerable to disappointments and adds pressure on the new CEO Gavin Isaacs to keep driving performance.
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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