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Are Entain shares a good buy in 2022?

by | Last updated 26 Nov, 2022 | Consumer Discretionary

Entain Plc (LSE:ENT) shares haven’t had the best run of late. Despite being a revered member of the FTSE 100, the share price has tumbled by almost 50% in the last 12 months.

As a reminder, the group is one of the largest sports betting, online gambling and gaming companies in the United Kingdom. Its portfolio of brands includes:

  • Coral
  • Crystalbet
  • Eurobet
  • Ladbrokes
  • Neds International
  • Foxy Bingo
  • Gala
  • Gioco Digitale,
  • Partypoker
  • PartyCasino

The company has its network spread across five continents with an employee workforce of over 2,500. Moving ahead, the company aims to be the world leader in sports betting and gaming entertainment.

That’s certainly an ambitious goal. But if successful, it could unlock some impressive long-term returns for my portfolio. With that in mind, let’s dive into the weeds of this business and try to uncover whether Entain shares are a good investment.

Company financials

The firm’s half-yearly performance reflects the underlying strength of its business model underpinned by its growth and sustainability strategy. At least, that’s the impression I get when looking at its latest results.

Net gaming revenue increased by 18% versus a year ago. Sadly this didn’t translate into superior profitability. In fact, the business failed to meet expectations and is undoubtedly a contributing factor to the lacklustre performance of Entain shares.

But it’s worth noting that 2021 did have some tough comparables courtesy of pandemic tailwinds. Meanwhile, management seems to have confidence in the future of the business. Or rather, that’s what the recent 8.5p interim dividend announcement would suggest. By the end of 2022, a total of £100m is expected to be returned to shareholders through dividends.

Entain share price performance

Trading around 1,140p, Entain shares currently have a market capitalisation of £6.59bn. But in 2021, the stock was flying much higher. In fact, right until October last year, the stock was on quite the warpath, reaching as high as 2,500p following a takeover bid from its competitor DraftKings.

What happened?

Well, obviously, DraftKings didn’t go through with their proposed bid, which saw a lot of the momentum behind Entain shares dissipate. But skip ahead to more recent news, and it seems the company recently landed in some hot water with regulators.

Regulatory fines

As per recent news, the gaming company has been fined £17m by the British gambling regulator. To make matter worse, Entain is under similar investigations by Australian financial review crime regulators.

Online sports betting took a huge spike during the pandemic. And Entain plc. owns roughly one-sixth of Australia’s betting market. From the total revenue of £3.9bn earned in the year 2021, a good chunk of it originated in the Australian market.

Despite the regulatory fine, Entain shares were largely immune to the announcement. In fact, the stock price was actually up on the day, signalling the market had already priced in this reality. Given it operates in a highly regulated space, these sorts of legal fines aren’t uncommon. Yet it remains a risk to be aware of.

Should I buy Entain shares?

Entain has reported double-digit growth for nine consecutive years now. And with continued progress in penetrating the United States sports-betting market, it doesn’t look like that trend is going to change, in my opinion.

However, the highly competitive nature of the industry does give me some pause. Regulatory fines may be commonplace, but the damage they cause, both financially and reputationally speaking, creates opportunities for rivals to steal market share.

The business may have a bright future ahead. But personally, I feel there are more exciting investment opportunities available elsewhere. Therefore, I won’t be adding any Entain shares to my portfolio today.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

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