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Analysts favour Entain shares ahead of H1 results

The Entain [ENT.L] share price has had a shaky year so far. Stocks have fallen 24.1% in 2022 as it prepares to release its interim results on Thursday 11 August. The sports betting company, which owns brands such as Ladbrokes, Coral and bwin, has suffered as customers cut down their discretionary spending in recent months.

It is not just Entain showing poor performance this year — it has been a challenging time for the wider betting industry. Gambling industry peer 888 Holdings’ [888.L] share price has fallen 50.3% since the start of the year (through 9 August), while US casino giant Caesars Entertainment [CZR] is down 50.7% in 2022. In comparison, the FTSE 100 is trading flat for the year.

The industry has struggled as investors fear that customers will have less spare cash to place bets as the cost of living rises. The UK plans to enforce tougher regulations on the betting industry in September in an attempt to reduce addiction and gambling abuse, which is also predicted to harm the industry’s revenues moving forward.

 

Online revenue continued to grow in 2021

The headline figures for 2021 were encouraging for Entain. The company’s total revenues rose 8% year-over-year to £3.9bn and pre-tax profits soared an impressive 125% to £393m. However, this was compared with 2020 figures dented by the impact of the Covid-19 pandemic.

The group, which runs approximately 2,700 betting outlets across the UK, saw its revenue from shops fall 7% to £791m. In March, Jette Nygaard-Andersen, CEO of Entain, noted that it was “too early to tell” if customers were permanently taking their bets online. The decline in betting shop revenue was offset by strong online revenues, which rose 12% in the year.

Entain said that BetMGM, its joint US venture with MGM, has secured a 23% market share in the sports betting and iGaming sector in the 21 markets that it operates in. It is also launching services in Illinois and Ontario in the next few months.

Alongside its US business, the group is also targeting expansion into Africa through its Impala Digital subsidiary. It will supply systems for the sports betting and gaming industry in the continent as it attempts to capture growth from an expanding market.

Analysts optimistic despite tighter UK betting regulations

There are concerns within the betting and gambling industry that increased UK regulation will harm future operations. The government is planning to target online operators with the possibility of introducing new stake limits and increased checks on what bets customers can afford.

There are also worries that customers will be put off if companies were forced to run in-depth checks on their customers’ finances. Companies are attempting to show regulators they can make betting safer without stringent regulation by imposing their own measures to limit the risk of problematic gamblers. Entain already identifies customers showing worrying betting patterns using an artificial intelligence (AI) programme.

However, stricter UK gambling laws are still expected to be introduced, which will impact the company’s future revenue. Entain has already said that fourth-quarter revenue was harmed last year by crackdowns in the Netherlands and Germany. Despite this, the group doesn’t rely solely on the UK market, and it will be partially protected by its considerable US operations.

Despite the future challenges that may face the industry, Entain’s CEO has ensured it remains in a strong position. Underlying performance has remained solid in the last year as revenue crept higher, while the company has continued to chase growth through its recent agreement to buy Dutch operator BetEnt.

Analysts share a consistently optimistic outlook on Entain shares when considering the recent decline in price. Out of 19 analysts polled for the Financial Times, seven gave a ‘buy’ rating, 10 believe the shares will ‘outperform’ while the remaining two gave a rating of ‘hold’. Out of 15 analysts giving 12-month price targets alongside this, the median target was 2,000p, which is 56.7% higher than the price the shares traded at on the market close on 9 August.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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