Technology And Marketing Investments Will Increase Market Share In UK, Brazil, And US

Key Takeaways

• Strategic focus on key markets and operational improvements are set to boost revenue growth and enhance margins and customer retention.
  
• Marketing efficiency investments aim to optimize acquisition costs and increase market share, supporting margin expansion amid competitive pressures.
  
• Regulatory changes and asset impairments, coupled with rising competition and financial challenges, threaten Entain's market position, profitability, and sustainable revenue growth.

Catalysts

Operates as a sports-betting and gaming company.

• Entain's strategic focus on must-win markets like the U.K., Brazil, and the U.S. is expected to drive significant revenue growth as these markets stabilize and recover from past regulatory challenges. This is particularly relevant given the positive momentum and market growth outperformance projected for 2025.
  
• The improvement in online customer journeys and product enhancements, such as the coin economies in the U.K. and streamlined payment processes in Brazil, are catalysts for increasing customer acquisition and retention rates. These operational improvements are likely to enhance net gaming revenue and EBITDA margins.
  
• BetMGM's advancement, especially in iGaming with Angstrom technology, is positioned to boost revenue as it transitions to profitability in 2025. The expectation of achieving £500 million in annual EBITDA portrays a strong future earnings potential for Entain from the U.S. market.
  
• Entain's investment in marketing efficiency, via performance marketing advancements and leveraging 365scores, aims to optimize customer acquisition costs and increase market share, especially in the U.K. and Brazil. This focus is anticipated to drive margin expansion and improved earnings even amidst competitive pressures.
  
• The projected elimination of the Deferred Prosecution Agreement payments by December 2027, alongside organic EBITDA margin expansion, positions Entain to generate significant cash flow, facilitating deleveraging and potentially enhancing shareholder value through stronger earnings and cash returns.

Entain Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Entain's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.9% today to 7.0% in 3 years time.
• Analysts expect earnings to reach £402.7 million (and earnings per share of £0.67) by about May 2028, up from £-452.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £611 million in earnings, and the most bearish expecting £253 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, up from -9.0x today. This future PE is greater than the current PE for the GB Hospitality industry at 17.0x.
• 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 9.67%, as per the Simply Wall St company report.

Entain Future Earnings Per Share Growth

Risks

• Regulatory changes in the Netherlands, Belgium, and Brazil are creating headwinds, with potential impacts on revenue growth and market share, highlighting risks that could hinder overall revenue and profitability.
  
• The impairment of assets in several markets, including Poland and New Zealand, indicates challenges in capital allocation and potential long-term impacts on financial performance and net margins.
  
• The increasing competition, especially in countries like Poland, requires significant marketing investments to maintain market position, thereby affecting net earnings and profitability.
  
• Cash generation has been challenged by regulatory impacts, rising interest rates, and DPA payments, which could strain financial flexibility and hinder future capital deployment.
  
• The temporary nature of favorable sports margins and the variability of growth in the U.K. and U.S. online markets suggest that sustainable, long-term revenue growth is uncertain, posing risks to maintaining current net margins.

Valuation

• The analysts have a consensus price target of £9.528 for Entain based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £11.4, and the most bearish reporting a price target of just £6.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £5.8 billion, earnings will come to £402.7 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 9.7%.
• Given the current share price of £6.38, the analyst price target of £9.53 is 33.1% 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.