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Entain - return of Retail boosts sales

Entain reported a 34% increase in first quarter Group Net Gaming Revenue (NGR), ignoring the effect of currency fluctuations.

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Entain reported a 34% increase in first quarter Group Net Gaming Revenue (NGR), ignoring the effect of currency fluctuations. The return of customers to stores helped Retail return to within 5-10% of pre-covid levels. That helped offset a drop in Online NGR, as the division lapped exceptional demand the previous year.

BetMGM, the joint venture in the US, is now live in 23 markets and remains on track to deliver positive cash profits (EBITDA) in 2023.

CEO, Jette Nygaard-Andersen, said: ''Given the strength and continuing momentum of our underlying business, coupled with our proven ability to grow both organically and through M&A, we remain confident in our financial performance for FY22 and beyond.''

The shares were down 1.2% in early trading.

View the latest Entain share price and how to deal

Our view

Entain is enjoying the benefits as people return to in-person gambling. Retail revenue is approaching pre-pandemic levels.

As a result, online gaming has come under some pressure - but that was largely expected. The huge boost to online gaming last year as shops were closed was always going to lead to some tough comparisons. Importantly, some of the increased demand looks to be sticky. When you look over a longer period, gaming revenue has grown significantly in the last couple of years. This is particularly good news, because margins for the online business are a lot better than retail. It costs less to run a website than a shop.

A major shift back to bricks-and-mortar could see overall margins come under pressure, so it'll be key the group continues to attract and keep customers with its online brands.

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 in 2023. Entain estimates the North American sports-betting and iGaming market will be worth approximately $32 bn over the long term. 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 up last year, owing largely to the group's acquisitions in Portugal and the Baltics. The group's already been active this year with three acquisitions to date, in a move to build out a presence in less mature regions. At last check, net debt was 2.4 times cash profits, not uncomfortably high, but worth watching.

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. 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

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.

Trading Statement (all figures at constant currency)

Online Net Gaming Revenue (NGR) was down 6%. That reflected lower volumes in Sports, with wagers down 4%, and a drop of 9% in Gaming. These were expected declines, as some of last year's demand returned to stores. Over a 3-year basis, online NGR has grown at an annualised rate of 14% per year.

Retail benefitted from the reopening of stores reduced restrictions, with performance within touching distance of pre-covid levels despite a smaller store estate. The group had an average of 4,333 shops during the period, compared to 4,662 the previous year.

BetMGM remains the second largest operator in the US with a 24% market share in areas it operates. The business boasts number one status for iGaming, with a 29% market share.

The group completed on 3 acquisitions over the period, Avid Gaming, Klondaika and Totolotek give exposure to Canada, Latvia and Poland.

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: 7th April 2022