Entain saw its full-year Net Gaming Revenue (NGR) rise 11% to £4.8bn, excluding the effect of exchange rates and the BetMGM joint venture in the US. That reflected an 8% rise in Retail and a 12% rise in Online. Underlying cash profit (EBITDA) rose 1% to £1.0bn, reflecting higher costs.
BetMGM, reported NGR of $2.0bn, an increase of 36%, and underlying cash profit was positive for the first time in the second half of 2023.
The number of active online customers rose to record levels, up 23% on last year.
Underlying net debt increased from £2.9bn to £3.3bn impacted by continued spend on acquisitions. Free cash flow fell from £428mn to £188mn.
The group guided that regulatory headwinds could negatively impact cash profit this year by around £40mn.
A dividend of 8.9p per share has been announced, bringing the total for the year to 17.8p per share.
The shares fell 3.5% following the announcement.
Our view
Entain are continuing their search for a new CEO after Jette Nygaard-Andersen stepped down last December. For the time being, Stella David is continuing to steer the ship.
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. Regulatory headwinds are expected to be a £40mn drag on cash profit this year. While the cost of compliance is disappointing, it shouldn’t come as a huge surprise to the market, given prior guidance from management.
Retail has been a positive surprise, with robust performance despite easier comparable periods now being behind us. But it's the higher margin online business where we see the future of Entain.
Along with full year numbers, we also heard more details about the next phase of Entain's strategic evolution. 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 £70m 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, largely because earnings estimates have been cut but markets still see long-term potential. We’re inclined to agree and think its strong brands and the opportunity in the US will come through over time. But regulation is a key risk which is continuing to impact performance, and organic growth needs to find its footing once more.
Entain key facts
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