Goldman Sachs Downgrades Entain Due to Online Growth Struggles

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Goldman Sachs, a leading investment bank and financial services provider, has downgraded Entain, a major player in the betting and gaming industry, from ‘buy’ to ‘sell’.

This significant change is the result of mounting concerns regarding Entain’s business growth, particularly in its online division. Goldman Sachs has also cut Entain’s price target drastically, from 1,450p to 820p, marking a notable dip below the company’s recent closing prices.

Entain Facing Numerous Challenges

Goldman Sachs explained that there were many factors currently impacting Entain’s performance. These include regulatory challenges, heightened competition, and shifting market dynamics. The online gambling sector of Entain, which includes brands such as Ladbrokes and Bwin, is especially affected.

The investment bank has said that it expects negative online growth for Entain in the latter part of 2023 and the first half of 2024, with a recovery not expected until later next year. This bleak outlook is further compounded by Goldman Sachs’ prediction of a 30% reduction in Entain’s earnings per share for 2024 and 2025, alongside deteriorating free cash flow.

Entain’s Struggles in the US

The challenges for Entain extend beyond growth metrics. Goldman Sachs highlights issues such as the diminishing market share of BetMGM, Entain’s joint venture in the US. Despite maintaining an 18% market share in certain states, BetMGM has been losing ground. Additionally, MGM Resorts International’s decision to launch BetMGM in the UK without Entain’s involvement, opting instead to partner with LeoVegas, is a further cause for concern.

Adding to Entain’s problems is the company’s Deferred Prosecution Agreement (DPA) that it reached with the Crown Prosecution Service (CPS) in the UK. The company has been hit with a significant financial penalty and charitable contributions totaling over £600 million. This settlement, related to historical activities in Turkey, is expected to impact Entain’s future performance.

Changes at Entain

Entain has instigated a number of changes in order to try to turn things around. Leadership shifts, tax residence relocations, and a rebranding from its former identity as GVC are all part of its attempts to take the company in a new direction. However, these changes have not protected Entain from regulatory scrutiny, as evidenced by the Gambling Commission’s record £17 million fine for social responsibility failings.

Despite these problems, Entain has shown some resilience. The company reported solid performance in the first half of 2023. Moreover, Entain announced Project Romer with the aim of achieving greater online EBITDA margins through operational simplifications and cost savings. The plan aims for significant cost reductions by 2025 in order to secure a more stable financial future.

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