Entain plc (ENT) Eur0.01

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Entain announced that CEO Gavin Isaacs has stepped down with immediate effect. Chair Stella David will be CEO on an interim basis until a replacement is found.

Entain remains comfortable with market expectations for 2025, which point to revenue of £5.3bn, and £0.7bn in operating profit.

The shares were down 10.4% in afternoon trading.

Our view

Markets haven’t taken kindly Entain CEO Gavin Isaac’s sudden departure, after just a few months in the job. Over that time, he’d already overseen a couple of small upgrades to guidance. With scant detail on the circumstances surrounding his exit there remain question marks as to whether there are any specific issues for shareholders to be concerned about.

We take some comfort in the unchanged outlook for this year, but hope a successor is found swiftly so that we can assess any changes to the strategic direction. The recent revelation that US joint venture BetMGM is heading towards profitability in 2025 is also a positive.

But the biggest contributor to Entain’s profits in the core business remains the UK & Ireland, where a new boss will have to contend with sluggish growth and a challenging regulatory environment.

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, 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 longer than expected to reach profitability due to heavy marketing spend in the growing online betting and gaming market, but there’s hope that losses will soon end. Bet MGM’s management is confident it will hit $500mn of annual cash profit in due course. But just how quickly it can close in on that target isn’t clear.

Entain looks to be overcoming recent challenges and there are some attractive growth prospects to go for. For those willing to accept the higher risk that accompanies the sector the valuation doesn’t look too demanding. But until the leadership void left by Gavin Isaacs is plugged, investors are likely to remain nervous, so expect more volatility than usual.

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.

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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