Entain saw its full-year Net Gaming Revenue (NGR) rise 10% to £4.3bn, ignoring the effect of exchange rates and excluding the BetMGM joint venture in the US. That reflected a 66% rise in Retail and a 2% decline in Online as comparative periods lapped Covid lockdowns.
BetMGM , reported NGR of $1.44bn, an increase of 71%, and is on track to be cash positive in the second half of 2023. Including Entain's 50% stake in this joint venture, Entain's NGR grew 15%.
The number of active online customers rose to record levels, up 7% on last year.
At the group level, reported underlying cash profits (EBITDA) rose 13% to £993m, reflecting the increase in revenues.
Underlying net debt increased from £2.09bn to £2.75bn thanks to continued spend on acquisitions. Free cash flow fell from £456m to £428m.
Entain has started 2023 with positive momentum, but continues to face regulatory headwinds.
A dividend of 8.5p per share has been announced, bringing the total for the year to 17p per share.
The shares were broadly flat following the announcement.
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Our view
Entain posted a strong set of numbers, with cash profit (EBITDA) coming in at the top end of recently raised guidance. The group's seen a jump in active customers despite the current cost-of -living pressures.
But, 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.
Debt crept up last year, owing largely to the group's continued spend on acquisitions. And there's already been more activity this year, most notably the BetCity acquisition. At the last check, underlying net debt stood at £2.75bn, or 2.8 times cash profit (EBITDA). That's a touch higher than we'd like to see given there are an increasing number of demands on cash - the revamped dividend being 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 been flat year-to-date, but remains well ahead of the longer-term average. The group's strong brands and growth opportunities underpin that valuation, but it adds extra pressure to deliver amidst a challenging regulatory environment. Expect some bumps in the road as regulators decide where to draw the line.
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.
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