- FY22 profit at top end of guidance
- Cautious FY23 outlook reflects regulatory headwinds
- US business to be profitable in 2023
Ladbrokes owner Entain (ENT) delivered full year profit at the upper end of recently upgraded guidance and said 2023 had got off to a good start, but cautious comments on regulatory headwinds and profit taking after a near 40% run since October sent the shares 5% lower to £13.15.
Net gaming revenues increased 12% to £4.35 billion and including the 50% share of net gaming revenues from US joint venture partner BetMGM were up 18% for the year ended 31 December 2022.
Online continued to suffer from tough comparatives, falling 1%, but excluding regulatory changes in the UK and the Netherlands underlying net gaming revenues grew around 3% driven by a 7% increase in active customers.
Over the last three years net gaming revenues have grown at a compound annual growth rate of 11% a year in constant currencies.
Meanwhile the retail estate continued its recovery from lockdowns, with revenues jumping 66% year on year.
HOW DID THE US PERFORM?
Net gaming revenue at BetMGM increased 77% to $1.44 billion, ahead of expectations. The business achieved an 18% market share in sports betting and 29% in iGaming in the states where it operates.
Management expects further growth in 2023, with revenue forecast to increase to between $1.8 billion and $2 billion, which puts BetMGM on track to contribute a positive EBITDA (earnings before interest, taxes, depreciation and amortisation).
Group underlying EBITDA increased 13% to $993 million close to the top of the guided range ($995 million). This contrasts with peer and Paddy Power owner Flutter Entertainment (FLTR), which disappointed after delivering profit at the bottom end of guidance.
Reflecting the shift back to retail and strong comparatives in online net online gaming EBITDA fell 8% to $828 million while retail jumped 319% to $280 million.
Entain ended the year with net debt of $2.75 billion representing a leverage ratio (net debt to EBITDA) of 2.8 times which falls to 2.6 times on a like-for-like basis.
WHAT DID THE COMPANY SAY?
CEO Jette Nygaard-Andersen commented: ‘I am particularly proud that Entain leads our industry on responsible gaming and we are now the only global operator exclusively in domestically regulated or regulating markets.
‘It is a mark of the strong progress we have made in executing our sustainable growth strategy, and we continue to see a vast array of opportunities around the world as we expand into the $170 billion addressable market that we have identified.’
Greg Johnson, leisure analyst at Shore Capital, said: ‘Management has previously highlighted underlying growth of “low to mid-single digits”, which is the basis of our FY23F digital estimates.
‘Looking into the current financial year, we see a number of headwinds annualising and potentially turning into tailwinds (Brazil) as the year progresses.’
Johnson believes the implied valuation of Entain’s US business is heavily discounted compared to peers Draftkings (DKNG:NASDAQ) and Flutter’s FanDuel.
‘Valuing “core” Entain at 8-9x EBITDA and BetMGM at 4x NGR would equate to fair value of over £18/share, which we would see as a base to build from’, Johnson added.
