Entain (ENT) 848.8p

Gain to date: 34.6%

A recent spike in Entain’s (ENT) share price sparked some interesting conversation here at Shares. Up 12% since 13 June, the jump puts paper gains at more than 33% on our original Great Idea from 5 September 2024.

There were several potential catalysts that prompted that pitch – rising pressure from activist investors, fresh leadership, possible sales of parts of the business that don’t really fit, and the possibility that, if trading didn’t improve and trigger the share price re-rating we hoped for, it could easily lead to predators circling again for an opportunistic takeover.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Judging by the recent guidance hike at BetMGM, Entain’s 50-50 joint venture with US casinos giant MGM Resorts (MGM:NYSE), a takeover may not be needed to unlock shareholder value.

In summary, the UK company told the markets that BetMGM’s full year revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) would be stronger than past expectations as encouraging business trends extended from the first quarter into the second, both from sports betting and iGaming.

Full-year revenue guidance has therefore been raised from between $2.4 billion to $2.5 billion to ‘at least $2.6 billion’, while EBITDA of ‘at least $100 million’ is projected for the joint venture, adding credibility to a medium-term $500 million target.

WHAT SHOULD INVESTORS DO NOW?

The key question facing investors now, is how much more share price upside is it reasonable to expect? On the face of it, the stock is not that much more expensive now than nine months ago, with the 12-month rolling PE (price to earnings) currently pitched at 15.8 (according to Stockopedia data) versus 13 then.

In the past, takeover offers of up to £28 per share have been rebuffed, implying what outside buyers have been willing to pay. That said, Entain has a patchy performance track record and execution risks remain in a highly competitive industry.

While it might be tempting to take profits now, we believe this is still an investment story that has plenty of scope to run. On balance, we think investors should stick with Entain. We’ll be watching closely over the coming weeks and months. 

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