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Entain downgraded to sell at Goldman Sachs due to disappointing online growth, BetMGM JV losing US market share

Published Nov 27, 2023 14:18
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London-listed sports betting, gaming and interactive entertainment company Entain (LN) (GMVHF) was double downgraded to Sell from Buy at Goldman Sachs, with the price target slashed to 820p from 1,450p per share.

Analysts told investors that they are downgrading the stock based on the firm's view of the fundamentals and because they believe the company's free cash flow yield merits caution.

The investment bank noted they have been wrong on Entain previously due to the company's disappointing online growth, owing to a mix of regulatory headwinds, competition, market dynamics, and unfavourable sports results "contributing to material downward consensus EPS revisions." In addition, they pointed to the joint venture with BetMGM losing market share in the US and the larger-than-expected £585 million HMRC settlement.

"Our prior Buy thesis looked for Online growth to inflect from 3Q23, and the US JV to become meaningfully profitable in 2024 and potentially return capital to the parents (acting as a catalyst for the JV's value to be recognised within Entain), together driving a re-rating from a seemingly attractive EV/EBITDA multiple on our prior estimates," explained the analysts.

"We now believe the inflection of fundamentals will take longer to come through, leading us to cut our estimates (by c.30% at EPS for FY24/25E). On our new estimates, we view Entain's valuation (2.2% 2024E GS FCF yield (or 4.9% excluding the year's HMRC settlement payment) vs. our coverage median at 6%) as relatively demanding on fundamentals, when set against our broader coverage," they added. "As such, absent external catalysts (e.g. an approach), we would expect the shares to continue to underperform within our coverage on a 12-month view."

Entain downgraded to sell at Goldman Sachs due to disappointing online growth, BetMGM JV losing US market share
 

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