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Entain – first-quarter revenue better than expected

Entain delivered a slightly better first-quarter performance than expected, despite regulation hurting performance in the UK & Ireland.
Entain - online gaming boosts profits

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Entain reported a 3% fall in first-quarter organic net gaming revenue (NGR), reflecting drops from both online and retail channels. The UK & Ireland saw NGR down 7% as new regulations took hold, while Croatia and Poland were the standout regions. Performance was slightly ahead of expectations.

Bet MGM, the US joint venture, reported a 2% rise in NGR despite unfavourable betting results. The group has a 14% market share in its operating markets.

The shares rose 1.2% in early trading.

Our view

First-quarter results provided investors with a small amount of relief. Organic revenue declines have eased since the final quarter of last year and performance from higher growth areas looks promising. But regulatory headwinds remain a challenge and there’s still a vacant permanent CEO seat that needs filling.

Regulation for Entain isn’t a new challenge, but several headwinds have come at the same time. Affordability checks in the UK and a German market that's seeing new regulations like stricter deposit limits, are expected to continue to weigh on performance. A recent vote in the Netherlands also paves the way for a potential ban on online gambling advertising. All in, regulatory headwinds were expected to be a £40mn drag on cash profit this year.

Retail has been a positive surprise, with performance hanging on despite easier comparable periods now being behind us. But we see Entain's future in the higher-margin online business.

Following a spree of acquisitions, organic growth is back in focus. We're expecting to see Entain exit some non-core markets like Chile and Peru, with investment funnelled into high-growth areas like the US and Brazil, along with the core regions like the UK.

Margin expansion is also on the cards, with 'Project Romer' on track to deliver £70mn of cost savings to the online operation by 2025 (c.6% of 2023 operating costs). These initiatives sound great, but we're not getting too excited until some results start to come through.

In the here and now, BetMGM, Entain's US-based joint venture is a shining light for the group. It's now in profit-making territory, a big milestone for a business that's historically been a drag on the bottom line. With many states still new to online betting, North America in a potential treasure trove. BetMGM’s now live in Nevada, the home of Las Vegas, making it the only top three operator with a licensed app in the state. We see a lot of room to run in this market, but it's starting to run up against tougher competition - so it's an area to follow closely.

The valuation’s ahead of the longer-term average on a price-to-earnings basis, largely because earnings estimates have been cut. In reality, it’s been under pressure of late. We can understand the sentiment, with regulatory headwinds, no permanent CEO and increased US competition. With a longer-term view, we feel the growth prospects are being overlooked and the opportunity in the US will come through over time - though there are no guarantees.

Entain key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. 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: 17th April 2024