ii view: Ladbrokes owner Entain bets on bigger profits

First-half results to 30 June

• Revenue up 6% to £2.55 billion
• Adjusted profit (EBITDA) up 5% to £524 million
• Reported post-tax loss of £46.9 million versus previous loss of £502 million
• Interim dividend up 5% to 9.3p per share 
• Adjusted net debt of £3.33 billion

Guidance:

• Now expects full-year Online net gaming revenues (NGR) growth to be low single digit positive, up from a previous low single digit negative
• Now expects full year adjusted profit of between of around £1.06 billion, up from £1.04 billion

Interim CEO Stella David said: 

"Entain's H1 results are clear evidence that our hard work improving the Group's operational performance is bearing fruit. Whilst there is more work to do, we are pleased with the progress so far and look forward to building further on these solid foundations in H2 and beyond.

Our focused execution underpins the Group's performance so far this year, and we are excited by the opportunities ahead. I look forward to welcoming Gavin Isaacs as our new Chief Executive Officer and supporting him as we continue to build on the Group's improving operational momentum."

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ii round-up:

Entain (LSE:ENT) today detailed profit that beat City forecasts, with the owner of brands including Ladbrokes and Coral also upgrading expected full-year profit.   

Adjusted first-half profit (EBITDA) driven by the football Euros rose 5% year-over-year to £524 million, exceeding analyst forecasts of £508 million. Adjusted full-year profit is now expected to come in at around £1.06 billion, up from a previous estimate of £1.04 billion. 

Shares in the FTSE 100 company rose 7% in UK trading having come into these latest results down by close to a half year to date. That’s in contrast to a 4% gain for PaddyPower owner Flutter Entertainment (LSE:FLTR) and a near 5% improvement for the FTSE 100 index in 2024.

Along with further brands such as bwin, Sportingbet and Foxy Bingo, Entain also operates a joint venture in the US with MGM Resorts under the BetMGM brand. 

Aided by revised regulatory implementation in Brazil and the Netherlands, full-year growth in online NGR is now expected to be up by low single digits, better than management’s previous estimate for down by low single digits. 

Revenue at its core UK & Irish business fell 6% during the half year. International revenue climbed 10%, aided by 28% growth in Brazil. Accelerating net revenue momentum was flagged for the BetMGM US business. 

Entain’s continued efficiency improvement - project Romer - is now targeting cost savings of £100 million by 2026, up from a previous £70 million. 

A reported post-tax loss of £46.9 million was much smaller than the £502 million deficit this time last year. A third-quarter trading update is likely early November. 

ii view:

Previously known as GVC Holdings, Entain today has licenses in over 40 regulated or regulating markets. Competing against rivals such as Paddy Power owner Flutter, the UK accounted for 41% of revenues in 2023, followed by the rest of Europe at 30%, Italy and Oceania 11% each and the rest of the world the balance of 7%. 

For investors, problem gambling and potential changes in government regulation remain a constant concern. Adverse sports results hindering profit margins are always a risk. Costs for businesses generally are now elevated, intense competition in its targeted US market is not to be dismissed, while group net debt of £3.33 billion compares to a stock market value of £3.6 billion.  

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To the upside, new chief executive Gavin Isaacs joining in early September will look to inject renewed vigour into Entain’s performance. Initiatives to reduce costs are being pursued. A diversity of both product and geographical markets exists, an estimated price-to-net asset value below the three-year average may suggest emerging value, while a forecast dividend of 3.4% compares to no existing payout at major rival Flutter. 

In all, and while big brands such as Ladbrokes and Coral will keep Entain on the watch list of many, investors will likely require firmer evidence that a bottom is in and a recovery is underway.

Positives: 

• Diversity of business type and geographical locations
• Pending new CEO

Negatives:

• Uncertain consumer outlook
• Potential for increased regulation

The average rating of stock market analysts:

Buy