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Entain - customers at record levels, guidance up

Entain reported a 15% rise in full year Net Gaming Revenue (NGR), ignoring the effect of exchange rates...

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Entain reported a 15% rise in full year Net Gaming Revenue (NGR), ignoring the effect of exchange rates and including the BetMGM joint venture. That reflected a 66% rise in Retail and a 2% decline in Online.

The number of active customers rose to record levels over the fourth quarter, 14% higher year-on-year.

BetMGM, the joint venture in the US, reported NGR of $1.44bn last week and is on track to generate positive cash profit in the second half of 2023.

At the group level, full year cash profit (EBITDA) is expected in the range of £985-£995m, ahead of previous guidance.

The shares rose 1.7% in early trading.

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Our view

Entain saw record fourth quarter gaming revenue and a spike in active customers as the winter World Cup gave punters plenty to sink their teeth in to.

It's no real surprise to see annual figures heavily influenced by growth in the retail division, as performance laps times when betting shops were shut due to lockdowns. There were always concerns that the lockdown-induced boom for online betting would simply shift back to physical stores, but that doesn't seem to be the case - online revenue is down a touch but remains well ahead of pre-pandemic levels.

That's good news because margins for the online business are a lot better than retail.

BetMGM, Entain's joint venture with US-based MGM, has been a shining light for the group that's expected to start turning a profit over the second half of 2023. Entain estimates the North American sports-betting and iGaming market will be worth approximately $37bn. 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.

It's an attractive business, for both MGM and Entain, and we wouldn't be surprised to see one party look to take full control at some point soon.

Debt crept up last year, owing largely to the group's acquisitions in Portugal and the Baltics. The group's already been active this year, most notably the BetCity acquisition. At last check, net debt stood at £2.2bn, or 2.3 times cash profit (EBITDA). It's not uncomfortably high when you consider free cash flow's expected around £440m this year. But there are an increasing number of demands on cash, with the revamped dividend the latest addition.

Greater scale should help drive improved efficiency and while regulatory scrutiny remains high, Entain's geographically diverse footprint (over 50% of revenues are generated outside the UK at last count) helps mitigate the risk to some extent.

Back in August 2022, Entain hit the headlines after a £17m settlement was agreed with the British Gambling Commission (the largest ever) for alleged historical licensing breaches. The Group's UK operations remain under a higher level of regulatory scrutiny, and we see this as a key risk to monitor given the UK remains its largest market.

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.

The valuation has moved up in recent months, well ahead of the longer-term average. The group's strong brands and growth opportunities support that move, but it adds extra pressure to deliver.

Entain key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 1st February 2023