13th Oct 2022 15:15
(Alliance News) - Entain PLC's third quarter update was largely well-received on Thursday, but some analysts were quick to note the broader headwinds facing the sector.
For the third quarter of 2022, the gambling operator said net gaming revenue rose 2%, though was flat at constant currency. The 2% growth was driven by retail sales, which advanced 10%. The retail arm consists of Entain's bricks-and-mortar estate.
Online net gaming revenue was up 1% year-on-year, though edged 2% lower on constant currency. The outturn was "broadly in line with expectations", Entain added.
"On home shores, tough comparisons remain for the online business until the lockdown boost to revenues finally falls away," interactive investor's Richard Hunter.
Hunter went on to consider: "The group benefits from ever-improving products, a range of well-known brands including but not limited to Ladbrokes and Coral and geographical diversity with the potential from further growth impetus."
The star of the show was, perhaps, Entain's US results. The BetMGM joint-venture, which Entain owns alongside MGM Resorts International, has a 25% market share in the areas in which it operates. That excludes New York.
Third-quarter net gaming revenue in the US surged 90% to USD400 million, helped by the start of the US National Football League season. Same-state revenue was up 50%.
"In terms of overseas presence, perhaps the most exciting driver for potential growth is the company's joint venture with MGM Resorts, in the form of BetMGM. In the US markets in which it operates, the venture has a 23% market share in an overall market which the group expects to reach over USD35 billion of revenue. The company is therefore strongly placed to benefit from such growth, as various states within the US continue to loosen restrictions," ii's Hunter observed.
Looking ahead, Entain's fourth quarter will benefit from the World Cup, as well as easier comparatives due to Covid-19 and the temporary closure of its Dutch arm. The latter annualised from the start of this month.
Annual earnings before interest, tax, depreciation and amortisation for 2022 are expected to be in line with previous GBP925 million to GBP975 million guidance, representing growth of around 10% from GBP881.7 million in 2021.
"Given there were a number of headwinds facing the group in [the third quarter], we expect the market to be reassured on [calendar year] estimates as the group looks towards what should be a strong [fourth quarter]," Davy Research said.
The market did seem somewhat reassured, with Entain shares trading 2.7% higher at 1,118.00 pence in London on Thursday afternoon.
However, ii's Hunter injected a note of scepticism into the gambling firm's outlook.
"For all the progress, Entain has been unable to shake off the shackles of some factors working against it. The most pressing concern is inevitably the consumer's propensity to spend, given the wider economic picture, and whether the cost of living crisis will simply evaporate some of the revenues which may otherwise have come Entain's way," Hunter said.
With recent UK consumer confidence data at its lowest levels since records began in 1974, there is good reason to be doubtful about whether consumers would be willing to spend what little discretionary funds they have in the gambling industry.
"In addition, the spectre of regulation is a constant threat, with problem gambling being an easy political target in any of the jurisdictions in which the group operates," Hunter warned.
By Tom Budszus; [email protected] and Elizabeth Winter; [email protected]
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