Entain has announced that it had acquired Avid Gaming, a Canadian sports betting company, for approximately £174m. The deal is expected to deliver around £8.7m in cost savings in 2023.
The group said: "Canada is a highly attractive and fast-growing sports betting and gaming market. Together with Entain's application for an Ontario licence, this acquisition provides an excellent opportunity to drive further growth, in line with the Group's growth and sustainability strategy."
The shares rose 2.3% following the announcement.
Entain's online offering, with the likes of Foxy Bingo, Ladbrokes and partypoker have all reaped the benefits of consumers spending more time at home. We've seen growth across all geographies, bar Germany due to regulatory reasons. This is particularly good news because running a website or app is much more profitable than running physical shops.
Added to this is a return to in-person gambling, which is undoubtedly positive for Entain, and we saw a sizeable jump in Retail NGR in the fourth quarter as shops reopened. But as online is more profitable, a major shift back to bricks-and-mortar could see margins come under pressure. That makes the online performance look promising, with NGR rising despite a tough comparable year. That helps confirm our belief that many players have probably shifted online permanently and backs the decision to double investment in its gaming studios.
BetMGM, Entain's joint venture with US-based MGM, was likely a large driving force behind last year's takeover talks. And we can understand why that was. Entain estimates the US sports-betting and iGaming market will be worth approximately $20.3bn by 2025. Continued market share gains and the steady increase in the number of states in which the company operates suggest BetMGM could be in-line for a sizeable chunk of that money.
Debt crept slowly upward from the start of the year, owing largely to the group's acquisitions in Portugal and the Baltics. The Avid deal will have pushed it even higher. At last check it was 2.2 times cash profits, not uncomfortably high, but worth watching.
Greater scale should drive improved efficiency and while regulatory scrutiny remains high, Entain's geographically diverse footprint (50% of revenues are generated outside the UK at last count) helps mitigate the risk to some extent. The group's also taken steps to boost its ESG credentials, with increased focus on responsible gambling, and a shift to regulated markets that provide a greater degree of regulatory certainty.
The 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. With a price / earnings ratio some way ahead of the long-term average, it looks like markets share the optimism. This is a vote of confidence, but could increase near-term volatility in the event of any missteps.
Entain key facts
- Price/Earnings ratio: 19.8
- 10 year Average Price/Earnings ratio 12.2
- Prospective dividend yield (next 12 months): 2.2%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Full Year Trading Update (20 January)
Entain full-year net gaming revenue (NGR) rose 8%, ignoring the effect of exchange rates. That was largely driven by strong online performance, where NGR was up 13%. That more than offset a fall of 3% in Retail NGR, as Covid restrictions impacted trading.
The BetMGM joint venture now has a 24% market share in sports-betting and iGaming in the US, generating NGR in the region of $850m.
Management expects full year underlying cash profits (EBITDA) of £875m - £885m, ahead of previous expectations.
Full year Online performance reflected a 22% growth in Sports NGR, with Sport Wagers up 21%. Gaming NGR rose 6% for the period, although this was up 16% compared to pre-pandemic levels. The group saw growth in all major markets except Germany, where new regulations are impacting performance. In the fourth quarter, total Online NGR was down 6% with a 12% drop in Sports, largely due to strong comparatives last year.
The fall in Retail NGR comes as Sport Wagers fell 9%, with margins following suit down 1.3 percentage points. Most stores were open for the full fourth quarter and Retail NGR was up 62% over the period, within 10% of pre-covid levels. That reflects a 77% increase in Sport Wagers, but margins fell 4.4 percentage points.
Jette Nygaard-Andersen, Entain's CEO, said: "BetMGM, our hugely exciting business in the US, has been a particular highlight with FY21 net gaming revenue ahead of expectations and an upgraded outlook for 2022."
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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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