Entain, the prominent owner of iconic betting brands Ladbrokes and Bwin, has recently seen its price target considerably lowered by the financial powerhouse Goldman Sachs. The reduction, a substantial cut from 1,450p to 820p, sits uncomfortably at 2.9% below its closing value on the 27th of November. A discernable downward trend, Monday’s close at 844p followed a similar diminished performance, 1.7% lower than the closing at 859p preceding Friday.
This significant retrenchment decision didn’t emerge from a vacuum; rather, it followed an announcement by Goldman Sachs regarding its downgrade of Entain. The bank cites a trio of pressing challenges the company faces: stringent regulatory environment, intensifying competition, and shifting market dynamics. These issues have notably hampered the growth of Entain’s online gambling sector—the digital pivot of gaming companies around the globe.
Goldman Sachs has projected that Entain’s pro-forma online growth, defying prior trends in the digital gaming industry, will recoil into negative territory in the fourth quarter of 2023 and extend this downward stride into the first half of 2024. The bank casts further doubts on the division, opting for a conservative forecast that does not anticipate a return to growth until the latter half of the next year.
Amid these concerns, Goldman Sachs has also taken a sharp scalpel to Entain’s forecasts, slicing the earnings per share estimates for the years 2024 and 2025 by roughly 30%. This recalibration of expectations has prompted discussions about weakening free cash flows, underscoring the challenges Entain may face in maintaining financial robustness.
Goldman Sachs didn’t shy away from detailing core issues that Entain is grappling with in real-time. Among these is the noticeable shrinkage of market share in the United States for its joint venture BetMGM—a partnership with MGM Resorts International. Reporting on its third-quarter performance, Entain pegged BetMGM’s market capture at a steady 18% in territories where online sports betting and igaming are in operation, a marginal increase from the previous quarter.
Yet, despite this steady state report, troubles brew as MGM has launched BetMGM in the UK, sidelining Entain and turning instead towards the newly acquired LeoVegas’ technology for operations. To boot, BetMGM is on track to release a business update shortly, which has the industry eyeing December 4th with anticipation.
Adding to the litany of Entain’s woes is the recent settlement with the Crown Prosecution Service (CPS) concerning the company’s past operations in Turkey. Entain has entered into a Deferred Prosecution Agreement (DPA) with the CPS, consenting to part with an exorbitant sum totaling £585.0m, inclusive of a financial penalty and profits disgorgement. Additionally, a charitable donation of £20.0m and a further £10.0m towards CPS and HMRC costs are part of the arrangement, payments for which will be stretched over the next four years once the final court approval is obtained on December 5th.
Was the settlement anticipated? Seemingly so, as previous announcements alluded to a provision in line with the set figure. However, Goldman Sachs analogized the settlement to a storm cloud over Entain’s future performance, resulting in the aforementioned downgrade.
It’s noteworthy that Entain, formerly known as GVC Holdings, maintains these sidelined operations are remnants of a bygone era, shed off in 2017. Nevertheless, the HMRC’s decision to probe these historical undertakings in 2020 has led to a quasi-revolution within Entain, stirring executive shuffles and prompting a rethink of its tax residence and management structure.
Despite these stormy forecasts, Entain steadfastly marched to a record half-year in 2023. However, the third quarter updates revealed online net gaming revenue growth trudging at a slow single-digit pace.
In a demonstration of confidence, or perhaps a calculated move to buoy market sentiment, Entain’s top brass including Chairman Barry Gibson and CEO Jette Nygaard-Andersen have substantially upped their stakes in the firm. This vote of confidence was matched by non-executive directors Stella David and Rahul Welde, who both augmented their shareholdings.
As a beacon amidst the tumult, Entain’s “Project Romer” shines with the promise of achieving an online EBITDA margin of 28% by 2026 and soaring to 30% by 2028. Undaunted by current predicaments, Entain has embarked on a transformative journey to simplify operations, enhance leverage, and drive cost efficiencies to achieve a savings landmark of £100.0m by the year 2025.
As the narrative unfolds for Entain, investors, employees, and consumers alike await to see how this venerable betting empire will navigate the gauntlet of challenges that lay ahead.
