Entain shares gain 5% on strong trading and profit guidance upgrade
Third quarter ahead of expectations
Full-year profit at top end
Investors await strategy update
Global gambling and gaming group Entain (ENT) lifted its full-year profit forecast after confirming the positive trading momentum highlighted on 9 September has continued through to the end of the third quarter, including the UK and Ireland getting back to year-on-year growth earlier than expected.
The news gave investors a temporary respite from swirling activists and reports of a potential tax raid on gambling firms by the UK government, with the shares rising 5% to 750p. They remain around 66% below the highs of 2021.
GOOD START FOR NEW CEO
CEO Gavin Isaacs commented: ‘My first few weeks as CEO of Entain have reaffirmed my view that this is a very good business operating in a highly attractive global industry.
‘Entain is already on a path of strategic and operational improvement, with the strong Q3 performance demonstrating the progress achieved so far.’
Third quarter group net gaming revenue increased 7% on a like-for-like constant currency basis driven by improving online growth, up 9% and a return to growth in the UK and Ireland.
In the US, the company said it has seen an encouraging start to the second half from its US joint-venture partner BetMGM with third quarter net gaming revenue up 18% in constant currencies. The company also noted some signs of market share stabilisation.
Strong performance across the group and increased confidence for the full year prompted management to upgrade online net revenue growth guidance from a low single digit to a mid single digit range.
Group EBITDA (earnings before interest, tax, depreciation, and amortisation) is now expected to be towards the top of the £1.04 billion to £1.09 billion range.
Jefferies believes the EBITDA upgrade implies a 2% increase to consensus forecasts of $1.065 billion.
‘We await the new CEO’s formal update around strategic direction and operating initiatives which could have the scope to move numbers and the valuation multiple,’ the broker said.
Shore Capital’s leisure analyst Greg Johnson anticipates nudging up his EBITDA forecast from the current £1.06 billion.
Johnson added: ‘The key however (excluding anything that may come out of the budget) is the return to mid-to-high single digit growth rates in Digital and momentum building in North America.’
AJ Bell investment director Russ Mould commented: ‘The recently appointed boss of Ladbrokes-owner Entain, Gavin Isaacs, is off to a decent start as a robust third-quarter performance prompts an increase in full-year guidance.
‘His first big challenge could be responding to the upcoming Budget which, reports suggest, could include a big increase in taxes levied on the UK gambling industry.
‘This could prompt the company to put even more of its focus into its BetMGM US joint venture with MGM resorts, which saw better-than-anticipated growth in the quarter. The company is also seeing a strong contribution from its digital business and its Brazilian operation is growing rapidly.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Martin Gamble) and the editor (James Crux) of the article own shares in AJ Bell.