Investors haven’t bet big on the Entain [ENT.L] share price this year. The owner of Ladbrokes and Coral has underperformed the wider market, despite strong underlying fundamentals and business approaching pre-pandemic levels.
One obvious reason for the downturn in Entain’s share price is the rising cost of living — after all, when times are tight most of us will prioritise basic needs over having a flutter at the bookies.
That makes this week’s second quarter results interesting reading for investors looking to see how rising inflation has affected Entain’s earnings over the past three months.
What’s happening with Entain’s share price?
Entain’s share price has fallen 25.6% this year, closing Friday 1 July at 1252.5p. That collapse mirrors rival Flutter’s [FLTR.L] 29.6% fall, and is much steeper than the wider FTSE 100’s 2.9% decline year-to-date. The downturn has been very much in evidence over the past three months, with Entain’s stock down 24.2% in that time. Entain’s share price is now considerably below its 52-week high of 2,500p and nearer its 52-week low of 1,204.5p.
What to watch in Entain’s earnings update
How Entain performs in its brick-and-mortar retail business versus online gaming will determine where the stock goes post-earnings. In first quarter results, published 7 April, Entain reported that net gaming revenue (NGR) was up 31% compared with the same quarter last year. Driving this was a rebound in retail gaming, with volumes within 5% to 10% of pre-covid levels. However, online NGR has slipped 8% since the height of the pandemic.
That marks a turnaround from 2021 when retail NGR shrank 7% due to store closures in the first half of the year, while online NGR increased 12% year-on-year. Yet both figures could be affected by the simple fact that people have less disposable income.
Entain’s US efforts will also be closely watched, particularly as the market continues to open up as more and more states legalise sports betting. In May, the company announced that BetMGM, its partnership with MGM, had achieved the number one position in the US sports betting and iGaming markets. The combined entity estimates that the total addressable market in the US and Canada is worth approximately $37bn.
BetMGM reiterated that it expects full year 2022 net revenues to exceed $1.3bn and to reach positive EBITDA in 2023.
Entain continues M&A strategy
Entain recently stumped up £257m for the purchase of Dutch gaming giant BetCity, with an expected £472m to be paid in future performance-related payments.
Big money, but then again BetCity is the largest online sports and gaming operator in the Netherlands, with a 20% market share. The deal is expected to close in the second half of the year and demonstrates a continuation of Entain’s M&A strategy. In the first quarter, this activity included transactions for Avid Gaming, Klondaika and Totolotek. This strategy while costly, diversifies Entain’s business model — handy if regulators come down hard in one territory.
Debt has been creeping up owing to this type of activity. In 2020 total debt stood at £2.44bn, while in 2021 it came in at £2.58bn, according to data from Refinitiv. However, this seems manageable considering net income in 2021 was £249.3m.
In a trading statement accompanying its first quarter results, Entain CEO Jette Nygaard-Andersen said that the company’s ability to “grow both organically and through M&A” meant it was confident in its outlook for fiscal 2022 and beyond. Whether this sentiment remains intact following this week’s update remains to be seen.
The 14 analysts polled by Refiniv have a median 12-month price target of 2,242.5p on the Entain stock, with a high estimate of 2,800p and a low estimate of 1,760p. Hitting the median would see a 79% upside on Friday’s close. Of the 19 offering ratings, Entain has seven ‘buy’ ratings, 10 ‘outperform’ ratings and two ‘hold’ ratings.
Disclaimer Past performance is not a reliable indicator of future results.
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