Rising Global Legalization Will Unlock Digital Betting Opportunities

Key Takeaways

• Sustained outperformance in key and emerging markets, coupled with operational gains and tech integration, could deliver outsized revenue, margin, and cash flow growth.
  
• Advanced personalization, broad geographic reach, and a focus on regulated markets uniquely position Entain for resilient, long-term earnings and sector-leading customer engagement.
  
• Regulatory pressures, shifting societal attitudes, rising costs, and increased competition are likely to squeeze revenues and margins while making geographic expansion and growth more challenging.

Catalysts

Operates as a sports-betting and gaming company in the United Kingdom, Ireland, Italy, rest of Europe, Australia, New Zealand, and internationally.

• Analyst consensus expects strong revenue growth from market recoveries in the UK and Brazil, but with Entain delivering 23% UK Online growth driven by volume and sustained outperformance in Brazil even amid regulatory transition, a step-change in market share gains and operational leverage could deliver outsized revenue and margin expansion well above expectations.
  
• Analysts broadly agree BetMGM's move to profitability and tech upgrades will drive growth, yet the integration of Angstrom's advanced pricing and in-play technology, already showing real impact across all Entain markets, could create a multi-year structural uplift in sports margins and customer engagement, accelerating EBITDA and free cash flow well ahead of peers.
  
• Entain's global platform now generates 98% of revenue from locally licensed markets, positioning it to rapidly capitalize as ongoing legalization of online betting in new jurisdictions, especially in Asia-Pacific and North America, unlocks significant long-term top-line growth and earnings resiliency.
  
• The convergence of digital entertainment and gaming, paired with Entain's investments into data-driven personalization and seamless user experiences (including frictionless payments and machine-driven customer journeys), could meaningfully enhance customer lifetime value and drive double-digit net margin expansion as customer acquisition and retention efficiencies compound.
  
• Geographic and product diversification-including continued double-digit growth across smaller regulated markets like Spain, Greece, New Zealand, and Central & Eastern Europe-reduces risk and enables Entain to outpace sector growth, supporting a premium valuation through more stable long-term earnings and accelerating cash generation.

Entain Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Entain compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Entain's revenue will grow by 7.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -8.9% today to 14.0% in 3 years time.
• The bullish analysts expect earnings to reach £875.7 million (and earnings per share of £1.35) by about July 2028, up from £-452.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, up from -13.3x today. This future PE is lower than the current PE for the GB Hospitality industry at 17.1x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.22%, as per the Simply Wall St company report.

Entain Future Earnings Per Share Growth

Risks

• Increasing regulatory scrutiny in key markets such as the Netherlands, Brazil, and potentially the UK is already resulting in significant revenue declines (down 26% in the Netherlands in Q1) and higher compliance costs, which could continue to negatively impact both revenues and net margins over the long term.
  
• Structural shifts in societal attitudes toward responsible gambling, combined with potential UK government consultations about restructuring gaming duties, may lead to increased restrictions or taxes, which could compress the company's future net margins and shrink its addressable market.
  
• Rising competition from alternative digital entertainment options, such as gaming and esports, was not addressed in the update, but continued consumer migration away from traditional gambling poses a risk to the company's long-term revenue growth.
  
• Persistent operational cost pressures from technology upgrades, regulatory demands (including ongoing AML and AUSTRAC proceedings in Australia), and the need to compete on customer experience are likely to keep net margins under ongoing pressure.
  
• Slower or challenged geographic expansion is evident with stagnant or declining volumes in Australia, continued "softer" revenues in the Netherlands, and tougher competitive and regulatory environments in Brazil, suggesting future top-line growth may be harder to sustain.

Valuation

• The assumed bullish price target for Entain is £12.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Entain's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £12.5, and the most bearish reporting a price target of just £6.3.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £6.2 billion, earnings will come to £875.7 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 9.2%.
• Given the current share price of £9.45, the bullish analyst price target of £12.5 is 24.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.