Goldman Sachs double downgrades Entain

Published on: November 28, 2023, 10:11h. 

Last updated on: November 28, 2023, 10:11h.

On the 28th of November, 2023, prominent sports betting brand Entain (OTC: GMVHF) found its shares downgraded by Goldman Sachs, resulting in the cutting of its stock rating from “buy” to “sell.”

An Entain lounge for employees
An Entain lounge for employees. Goldman Sachs double downgraded the stock to “sell.” (Image: Entain)

In bypassing a “hold” rating for Entain, Goldman drastically cut the stock’s price target, citing a 43.4% decrease as it admitted to earlier misjudgments regarding the struggling stock. The bank attributed the downgrade to problems within Entain’s online business, a major factor in the operator’s projected net gaming revenue (NGR) shortfall for 2023.

Goldman went on to additionally highlight the operator’s negative EPS estimates for 2024, driven by such factors as increased competition, significant bettor success in the third quarter, and ongoing regulatory challenges. Also coming into play is the $729 million settlement payout recently agreed upon by the operator to HM Revenue & Customs (HMRC) of the UK after bribery allegations related to previous business operations in Turkey.

We now expect Entain’s pro-forma Online growth to be negative in 4Q23 and 1H24, only returning to positive growth in 2H24,” wrote Goldman analyst Ben Andrews.

Andrews adjusted EPS forecasts for 2024 and 2025 down by approximately 30%, showing significant bearishness about Entain’s future performance.

BetMGM Woes Further Pressure Entain

The troubled BetMGM, in which Entain holds a 50% stake, is compounding the operator’s challenges. The joint venture with MGM Resorts International (NYSE: MGM) is facing increasing competition in the US online sports betting industry from dominant players DraftKings and FanDuel, with market share being gradually eroded.

Making matters worse is the intensifying competition from Bet365, ESPN Bet, and Fanatics, collectively challenging the remaining market share, while DraftKings and FanDuel consolidate their dominance.

Earlier expectations of significant BetMGM profitability in 2024 have been dashed, with analyst Andrews now expecting Entain and MGM to redeploy any 2024 profits generated by BetMGM back into the business.

Analysts have started to question the longevity of Entain’s stake in BetMGM, as the company appears to be under increasing pressure to reconsider its current approach. At the recent Global Gaming Expo (G2E) in Las Vegas, Entain CEO Jette Nygaard-Andersen indicated that while joint ventures will not be sustained indefinitely, the company’s position on BetMGM’s fate remains uncertain.

Downgrade Could Trigger Action from Entain Activists

Goldman’s double downgrade comes as New York-based hedge funds Dendur Capital and Sached Heam Capital seize large stakes in Entain, signaling activist positions. Both funds are advocating for Entain to give Eminence Capital founder Ricky Sandler a role in filling certain director vacancies.

Goldman’s Thomas also mentioned Entain’s weakening free cash flow position, further emboldening the activist investors to push for a sale of the company — something Thomas sees as the primary “upside risk” for the stock.

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