JPMorgan upgrades Entain to 'overweight'

(Sharecast News) - JPMorgan upgraded Ladbrokes owner Entain on Tuesday to 'overweight' from 'neutral' as it said market share momentum appears to be more resilient than initially anticipated, with a solid third-quarter performance delivered despite the lapping of some of these easy comps. This implies a sequentially improving underlying momentum, the bank said. In the UK specifically, Q3 online net gaming revenue growth was 15% after 21% growth in the first half, despite comps somewhat normalising quarter-on-quarter, it said, "demonstrating a supportive momentum overall".

The bank also said that the new strategy at BetMGM was bearing fruit.

"The US, #2 geography at Entain (14% of group NGR), has regained momentum over the last year, partly underpinned by its recently revised strategy of targeting a very specific 'premium mass' player base within sports, rather than directly competing with industry leaders FanDuel and DKNG (both more skewed to casual bettors)," it said.

"Separately, product improvements including Angstrom integration across all (pre-game) sports, Nevada new app launch, single app/wallet US roll-out and various marketing/loyalty agreements (with X and Bonvoy) seem to be coming to fruition, driving strong topline momentum."

JPM said it expects BetMGM to hit its $500m EBITDA target by FY 27. Starting this year, BetMGM will be distributing most of its EBITDA - net of a £50m annual capex - to both parents, which should essentially help bolster Entain's own cash, it said.

BetMGM is a joint venture between MGM Resorts International and Entain.

JPM also highlighted Entain's "relatively well diversified portfolio", which it said adds an element of defensiveness versus some of its peers.

"The UK is the largest geography and accounts for circa 1/3 of group NGR, with the next 4 geographies accounting for the next 1/3 (US, Italy, Australia, Brazil) when incorporating Entain's 50% share of BetMGM's total net revenue," it said.

The bank said the stock's valuation looks appealing, with Entain still trading at the low end of the peer group range.

"Shares have been under pressure on the back of the UK Budget and prediction markets," it noted.

"With the UK, its biggest geography, now de-risked (the UK Budget related gaming tax increase triggering HSD-LDD percentage cuts to Entain's group EBITDA post mitigation, now incorporated in our estimates), valuation remains appealing, with the shares trading on 6.3x 1-year forward EBITDA (ex BetMGM)."

JMP cut its price target on Entain to 1,090p from 1,150p.

At 1420 GMT, the shares were up 1% at 794.60p.