- Pre-tax profit more than doubles
- Group repays less than half of furlough money
Gambling habits have changed during the pandemic. Lockdowns and cancelled sports fixtures drove people online in 2020, and betting shops are still quiet – at least according to Entain’s (ENT) latest results.
Revenue at the gambling group, which owns the likes of Ladbrokes and Coral, is up 8 per cent year on year, pre-tax profits have more than doubled, and its customer base has expanded by a quarter. However, growth has been driven by its online division – specifically sports wagers, which are up 20 per cent.
In contrast, Entain’s retail arm made an underlying loss of £37.4mn, compared with a loss of £19mn in 2020. Management said business was “significantly impacted” by lockdown restrictions in the first half of the year, and the group is investing in in-house technology to bring people back to its shops.
However, gambling companies are increasingly turning to America for their big growth opportunities. Entain has a 50:50 joint venture with BetMGM – a US sports betting and ‘iGaming’ company – which should give it a foothold in this lucrative market. BetGM is currently lossmaking, but it is expected to turn a profit in 2023.
Entain has been pouring money into BetMGM, together with other acquisitions (the group had a net cash outflow of £247.9mn in 2021). However, its balance sheet is looking rather strained. Its current ratio, for example, is just 0.89, suggesting that it does not have enough current assets to meet its current liabilities.
Tighter regulation could add to the pressure. Entain repeatedly claims to deliver “industry leading ESG” in its report, but it’s hard to imagine more regulation will be welcomed. UK government proposals to reform gambling laws are due to be published in May.
Despite its purported ESG credentials, the group is also hanging on to a large sum of furlough cash. While it has repaid £44mn to the government this year, it shows no signs of returning the £56mn claimed at the start of the pandemic.
Analysts are confident that this momentum share will keep growing. Morgan Stanley, for example, forecasts group revenues of £4.27bn and Ebitda of £1.05bn for 2022. However, with the threat of more regulation round the corner, investors will be wary. Hold.
Last IC View: Hold, 2,040p, 27 Oct 2021
|ORD PRICE:||1,612p||MARKET VALUE:||£9.5bn|
|TOUCH:||1,611-1,613p||12-MONTH HIGH:||2,500p||LOW: 1,381p|
|DIVIDEND YIELD:||nil||PE RATIO:||36|
|NET ASSET VALUE:||540p*||NET DEBT:||66%|
|Year to 31 Dec||Turnover (£bn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £5.4bn, or 915p a share|