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Entain share price down 30% YTD ahead of Q3 release

Person holding a mobile with an Entain logo

FTSE 100 betting firm Entain [ENT] will reveal to what extent the cost-of-living crisis is affecting customers’ willingness to place bets when it reports third-quarter earnings on Thursday 13 October.

The bookmaker, whose brands include Coral, Ladbrokes and Gala Bingo, enjoyed a profitable period during the coronavirus pandemic, but in August reported that its online net gaming revenue (NGR) was down 7% for the quarter.

“The macro-economic outlook is uncertain. However, the underlying performance of our business remains strong,” Entain CEO Jette Nygaard-Andersen said in a Q2 trading update. She remains confident that the business has “relatively resilient revenue” and that its “proven ability to grow both organically and through M&A” puts the company in a strong position.

After setting a 52-week low of 994.60p on 7 July, the day the Q2 trading update was released, the Entain share price gained throughout the rest of the month and the first half of August. However, it has pulled back since then, closing at 1,118.50p on 10 October. The stock is down 33.1% year-to-date.

Retail makes up for lagging online revenue

In August, Entain reported net gaming revenue of £2.1bn for the six months to the end of June, representing a 18% increase on a constant currency basis versus the same period in 2021. With online gaming revenue falling 7%, the increase was driven by strong performance in its retail segment, which was up 232% year-on-year and has increased 2% on a compound annual growth rate basis from pre-pandemic 2019 levels.

“The huge boost to online gaming last year as shops were closed was always going to lead to some tough comparisons. It's still positive that some of the increased demand looks to be sticky. When you look over a longer period, gaming revenue has grown significantly,” wrote Hargreaves Lansdown equity analyst Matt Britzman in his analysis of the earnings.

The group’s cash profit for the first half of the year was up 17% to £471m. It reiterated that it expects full-year EBITDA to be between £925m and £975m. Investors will be waiting to hear whether the group still expects to meet its full-year guidance.

US joint venture to be a key driver

With retail revenue not expected to impress in the third quarter, investors will be turning their attention to its US joint venture, BetMGM. As of the end of May, the company was the second-biggest operator with a market share of 23% in the regions where it operates, excluding New York.

BetMGM net gaming revenue was $608m in the first six months, up 65% year-on-year. It has previously forecast that its full-year net gaming revenue will be around $1.3bn.

Entain may also use the Q3 earnings to provide an update on its push into central and eastern Europe. It announced on 11 August that it had agreed to buy Croatia’s leading gaming and sportsbook operator, SuperSport, in a deal that’s expected to help Entain grow its presence in the region. Further acquisitions could be announced in the coming quarters, particularly in countries where betting markets are starting to open up.

Analysts rate Entain shares a ‘buy’

Hargreaves Lansdown’s Britzman is confident about prospects for the company, arguing that Entain’s “underlying business looks to be progressing well, with the group finding a good balance between building out its online presence and offering an in-store option. The BetMGM project offers a real growth driver for the future if execution remains on point.”

Peel Hunt analysts are also confident. In a note last week seen by Proactive Investors, they wrote: “Management is likely to be more cautious on the outlook next week than in August, but we expect Entain’s strong online offer to benefit from diminished out-of-home spending and to provide resilience”.

Analysts are overwhelmingly bullish on Entain stock, which has nine ‘buy’ ratings, according to MarketBeat. The consensus price target is 2,203p, which implies an upside of 97% from the most recent closing price.

Of the 20 analysts providing ratings to the Financial Times, seven repeat the ‘buy’ rating, 12 call it an ‘outperform’ and one recommends to ‘hold’. The 16 analysts offering 12-month price targets had a median target of 1,975p, a slightly more modest 76.6% upside on the recent close.

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