24th Aug 2022 15:55
(Alliance News) - Ladbrokes owner Entain PLC has a wealth of opportunities in eastern Europe and the US, analysts at German bank Berenberg said on Wednesday.
The gambling firm's promise in far away regions vastly contrasts with what is becoming a more strict regulatory environment domestically, with the UK mulling stricter curbs on punters.
Berenberg rates Entain at 'buy' with a 2,000 pence price target, lifted from 1.950p. Entain shares were 0.5% lower at 1,290.50p each in London on Wednesday afternoon.
The Ladbrokes and Coral owner earlier in August posted revenue of GBP2.09 billion for the six months ended June 30, up 19% year-on-year from GBP1.77 billion.
Separately, Entain said it has partnered with EMMA Capital, an investment firm based in the Czech Republic, to establish a new venture, Entain CEE, to drive expansion in Central and Eastern Europe.
The London listing will own 75% of the economic rights in Entain CEE, with EMMA Capital owning the other 25%. Entain CEE will acquire the SuperSport Group, the gaming and sportsbook operator in Croatia from EMMA. The deal would value SuperSport at EUR920 million.
Entain will pay EUR600 million at completion and a further EUR90 million based on SuperSport's Ebitda for 2022.
Berenberg said: "Looking ahead, we think the company's Entain CEE venture, announced at the H1 2022 results, opens the door to an attractive set of markets in eastern Europe, which should complement organic growth in Entain's other core geographies. This, as well as BetMGM continuing to perform well ahead of the 2022 NFL season, gives us confidence in the short-, medium- and long-term opportunities for Entain."
Aside from Ladbrokes and Coral, Entain also owns the bwin and partypoker brands. In addition, it has a 50% stake in US brand BetMGM, alongside MGM Resorts International.
"Following a disappointing Q2 trading update in July, the market was happy to hear that Entain had not faced additional macro headwinds on top of those already factored into guidance at the interim results in August," Berenberg said.
Looking ahead, Entain still expects to achieve an Ebitda of GBP925 million to GBP975 million for 2022, in line with current consensus. This would be an increase from GBP881.7 million in 2021. Peer Flutter Entertainment PLC, the owner of Paddy Power and Skybet, earlier in August said punters were still having a flutter despite inflationary pressures.
Progress in the US, as well as the buy in eastern Europe, a stark contrast to some of the regulatory woes Entain faces in the UK.
The UK gambling sector has fallen under tighter regulatory scrutiny in recent years. A GBP2 maximum stake for fixed-odds betting terminals has been implemented, a ban on customers depositing online using credit cards has also been introduced, and there is the possibility of stricter affordability checks on consumers also being implemented.
More recently, a white paper aimed at altering UK gambling laws was delayed in July, due to political turmoil. The identity of the next prime minister is not yet known, with Foreign Secretary Liz Truss and chancellor Rishi Sunak the remaining contenders in the race for number 10.
The delay to the white paper meant gambling firms were allowed to sign new sponsorship deals with Premier League football clubs. Bookmakers sponsoring top-flight football outfits has been a contentious issue, and there is a growing conviction that they will eventually not be allowed to do so.
The outlook in the UK is clouded by regulatory uncertainty, but progress in the burgeoning US market gives Entain investors a reason to be cheerful.
Berenberg said Entain's US arm makes up just shy of half of its valuation.
"We value Entain using a divisional [discounted cash flow] model and blend in a value for the US. This yields a price target of 2,000p composed of 1,015p from the ex-US business and 985p from the US business," Berenberg said.
The DCF model uses expected future cash flow as a valuation method.
By Eric Cunha; [email protected]
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