Investing in the gambling sector may not be everybody’s cup of tea but we believe embattled sports betting and gambling firm Entain (ENT) has become so unloved and neglected that the upside potential now comfortably outweighs the downside risks.
With several activist investors on the share register pushing for change, rumours of private equity interest in breaking-up the group and a newly appointed CEO (Gavin Isaacs), there are numerous paths to unlock value which should act as a catalyst for the shares to recover.
Entain is the second worst performer in the FTSE 100 over the last year with the shares having lost 44% of their value and they sit 85% below their £22 peak in October 2021.
Long-suffering shareholders have seen the board turn down a shares and cash offer equivalent to £28 a share from US fantasy sports betting company DraftKings (DKNG:NASDAQ) in 2021 and a £14 per share offer from US its joint-venture partner BetMGM a few months earlier.
Under the company’s previous strategy Entain had acquired leading brands and including Ladbrokes Coral in the UK, BWIN in Europe, while establishing a US presence via a 50/50 joint-venture with BetMGM.
Recent acquisitions under the prior CEO Jette Nygaard-Andersen were more questionable which is a particular gripe for activist Eminence Capital which has a seat on Entain’s board.
Based on sources familiar with the matter, analysts at Berenberg believe investment bank Moelis is advising Entain on the disposal of brands which have not been integrated onto the firm’s technology platform.
These include BetCity, a Netherlands business which was bought for £398 million, Sweden-based Enlabs and CrytalBet in Georgia. The total revenue contribution from brands not on the tech platform equated to around 35% of Entain’s online gaming revenue in 2023.
Disposals are just one way to unlock value in the group. A key part of the investment case is the valuation of the group ascribed by the market is too pessimistic.
AVI Global Trust (AGT) has a stake in Entain and commentary from the manager suggests the company trades at a significant discount to its own history and listed peers of between 25% and 45% as well as valuations implied by recent merger and acquisition activity.
Greg Johnson at Shore Capital reckons that excluding the value of BetMGM, Entain is valued on a PE (price to earnings) ratio of just 13 times which he believes has the potential to re-rate ‘materially’ considering a move back to growth in the first half and momentum in the US.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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