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Entain - online revenue weaker than expected

Entain has seen a mixed performance in online net gaming revenue (NGR) since the summer and now expects a high-single-digit percentage decline in the third

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Entain has seen a mixed performance in online net gaming revenue (NGR) since the summer and now expects a high-single-digit percentage decline in the third quarter on an underlying basis. In an unscheduled trading update, the group called out regulatory challenges and sports betting results as headwinds.

Retail performance has been "robust" and BetMGM, the joint US venture, remains on track to deliver positive cash profit in the second half. At the group level, cash profit guidance of £1.00-£1.05bn stays in place.

The next update will be a scheduled third-quarter trading statement on 2 November.

The shares fell 3.8% in early trading.

View the latest Entain share price and how to deal

Our view

No one likes a revenue downgrade, so the unexpected update suggesting online performance has been worse than expected was disappointing. These aren't new challenges; organic growth's been limited of late, with acquisitions picking up the slack back at the half-year mark. Fresh affordability checks in the UK, and a German market that's seeing new regulation like stricter deposit limits, are all weighing on performance.

Retail has been a positive surprise, with growth continuing despite some of the easier comparable periods fading into history. But it's the higher margin online business where we see the future of Entain, so it was pleasing to hear an operational review is underway.

Details are limited, but what we took away from management's comments was a renewed focus on organic growth. That's a shift in strategy away from the recent spree of acquisitions, the latest in Poland being a prime example. This deal was funded with equity, rather than debt, which was probably prudent as debt costs have been creeping higher.

We also heard that de-leveraging and streamlining are on the cards. That could mean selling some non-core assets and exiting lower growth areas of the market. More information is expected in November, and investors will no doubt be keen to hear more.

BetMGM, Entain's joint venture with US-based MGM, has continued to be a shining light for the group. It's finally started to enter profit-making territory, a big milestone for a business that's been a drag on the bottom line up to now. North America is a potential treasure trove and we see a lot of room to run for this asset.

The valuation remains ahead of its longer-term average, though a large part of that is the potential growth from BetMGM. We support a premium, given the size of the opportunity in North America and the strength of the core operations. But plan for ups and downs, regulation is a key risk and one we're seeing have an increasing impact on performance.

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: 25th September 2023