Regulations Will Hurt UK And Brazil But Tech Will Aid

Key Takeaways

• Regulatory pressures and rising compliance costs in key markets risk constraining revenue growth and increasing long-term operating expenses.
  
• Shifting entertainment preferences and increased government intervention threaten sustainable customer growth and could erode margins and earnings.
  
• Strong operational execution, technological investment, and geographic diversification support resilient growth, higher market share, and increased earnings amid expanding regulation and global market opportunities.

Catalysts

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

• Regulatory headwinds are intensifying across key markets, with the Netherlands experiencing a 26 percent year-on-year revenue decline due to harsh new regulation, while Brazil's shift to a regulated environment has already resulted in lower contribution margins after new taxes and compliance costs; these pressures are likely to constrain group revenue growth and drive up long-term operating expenses.
  
• The gaming industry is facing rising government intervention globally, including the UK government's consultation on restructuring online gaming duties and the risk of further harmonization of tax rates, which-despite being years out-would materially squeeze Entain's future net margins and harm medium-term earnings momentum.
  
• Heightened focus on responsible gambling and anti-addiction measures will likely force Entain to tighten customer controls, directly reducing player spend in mature markets like the UK and potentially exacerbating volume weakness already evident in retail, putting persistent pressure on both revenues and net income.
  
• As younger generations turn increasingly to alternative entertainment forms such as video games and social platforms-which fall outside Entain's core offerings-the long-term customer acquisition funnel shrinks, posing a structural headwind to sustainable topline growth across both online and retail channels.
  
• With ongoing dependence on geographic expansion and M&A for growth, Entain faces mounting risks of regulatory fragmentation, costly integration challenges, and overextension across jurisdictions; the resulting inefficiencies and heightened compliance burden threaten to erode operating margins and dilute core earnings over the next decade.

Entain Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Entain compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Entain's revenue will grow by 3.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -8.9% today to 5.7% in 3 years time.
• The bearish analysts expect earnings to reach £325.6 million (and earnings per share of £0.37) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, up from -13.3x today. This future PE is greater than the current PE for the GB Hospitality industry at 17.4x.
• 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 9.23%, as per the Simply Wall St company report.

Entain Future Earnings Per Share Growth

Risks

• The company's strong return to growth, with Group Net Gaming Revenue up 11 percent and Online up 10 percent year on year, along with consistent outperformance in key markets like the UK and Brazil, signals robust underlying business momentum that could translate into higher revenues and sustained earnings growth in future periods.
  
• Recent and ongoing investments in proprietary technology platforms, such as Angstrom integration and customer journey enhancements, are driving improvements in product speed, in-play betting, and customer engagement, which are likely to deliver operating efficiencies and improved EBITDA margins over the long term.
  
• Entain's portfolio is highly diversified both geographically and by channel, with leadership positions in regulated growth markets-98 percent of group revenues are now locally licensed and several markets (including Spain, Greece, Canada, Austria, and Central Eastern Europe) recording double-digit growth-which enhances resilience and underpins the sustainability of top line growth and cash flow generation.
  
• The successful transition into newly regulated markets such as Brazil, accompanied by effective marketing partnerships and favorable consumer trends, positions Entain to benefit from global legalization, regulatory certainty, and secular growth in online betting, which should support rising revenues and limit downside risk to earnings.
  
• Maintaining stability and continuity in leadership while elevating operational execution and centralizing performance marketing is restoring market share in core geographies-particularly in UK online-and, together with sustained investment in digitalization, is likely to drive higher market share, increased lifetime customer value, and expanding net income over time.

Valuation

• The assumed bearish price target for Entain is £7.61, which represents two standard deviations below the consensus price target of £10.36. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be £5.7 billion, earnings will come to £325.6 million, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 9.2%.
• Given the current share price of £9.42, the bearish analyst price target of £7.61 is 23.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.