SBC News City View: Entain needs DNA change to meet 2024 recovery 

City View: Entain needs DNA change to meet 2024 recovery 

Last Thursday, Entain Plc published its full-year accounts revealing the scars of a problematic 2023.

The long-awaited results of the FTSE100 gambling group left no place for hiding as leadership declared corporate losses of £900m. Though leadership maintains that dire 2023 results were down to legacy failings, under the bonnet, the year-end accounts detailed growing concerns across all markets including elements impacting its ‘growth child’ BetMGM.

2024 will see the Capital Allocation Committee appointed to review Entain’s brand portfolio, funding, and operating structures as vital decisions are needed to turnaround the performance and corporate value.

Putting its legacy failings aside, can a leaderless Entain claw back its status and investor trust, as speculation mounts of M&A vultures circling the beleaguered gambling PLC? 

SBC News City View: Entain needs DNA change to meet 2024 recovery 
Ivor Jones: Peel Hunt

Ivor Jones, Equity Analyst for Gaming & Leisure at Peel Hunt, commented on the 2023 scars: “The 25% share price decline during the year (and further decline in 2024 so far) shows the impact of the challenges very clearly. The acquisition of STS in mid-2023 was a clear turning point.”

“At a time when investors were already nervous about the operating performance of Entain, it made another major acquisition which fuelled the view in some quarters that the reason Entain needed to keep the M&A engine running was because the business was in decline at its core.”

Beyond its dire results, Entain was shocked by a year of negative headlines, revealing leadership conflicts and investor doubts, as noted by Paul Richardson, Partner of global gambling M&A Advisory Partis Solutions.

“Unfortunately for Entain 2023 was characterised by what seemed to be a never ending sequence of bad luck and bad news.” Richardson told SBC.

“Coming on top of the HMRC settlement and the advent of activist  investors onto the register, management’s credibility was further undermined by the devastating article which appeared in  the Financial Times – ostensibly from well informed disgruntled insiders.”

Recognized in the investor update, Entain faces a precarious situation in which its corporate recovery hinges on rejuvenating its investment strategy aimed at enhancing its core market performance and improving tech integrations.

Noted as a steep challenge for a PLC that has grown to date via an aggressive M&A playbook, as Ivor Jones detailed: “Management has to convince shareholders that the refocusing of investment in product and marketing in core markets has not come too late to stop the rot.”

Furthermore, City analysts opine that the underlying leadership conundrum and strategy must be addressed to execute a recovery, as Paul Richardson noted: “A real issue for Entain this year has been the brain drain of top talent.  The under-performance of the core businesses such as Bwin has perhaps unfairly pushed the spotlight onto the success of the M&A strategy with more pressure for instant wins.”

Consecutive M&As have obscured the reality that Entain has not successfully integrated its brands and platforms—a fact laid bare by the company’s admission of lagging performance in its UK apps and declining market presence in Brazil.”

Shrinking an Unsustainable Portfolio 

As 2024 unfolds, Entain’s corporate governance states a ‘laser focus on corporate recovery’ in which it has assigned a Capital Allocation Committee to begin its review of disposable assets of an unsustainable portfolio spanning 35 individual brands.

However, the initiative of shrinking the portfolio will once more highlight the flaws of Entain’s growth strategy and its likely discounted impact on the valuation of individual brands. 

SBC News City View: Entain needs DNA change to meet 2024 recovery 
Paul Richardson: Partis

As noted by Richardson: “You might expect them to sunset brands, but it’s easier said than done. Historically, Entain has operated a strategy of localised brands across markets with little-to-no-integration.  That can lead to a confused marketing strategy and reduce the brands’ potential effectiveness in a highly competitive market like Brazil.”

Peel Hunt views the shrinkage as a blunt measure required to reorganise Entain: “The focus required in core markets implies less attention being paid to peripheral businesses, even large ones if they are not integrated onto the core technology platform.

“There will be disposals, probably of businesses which require the most time and/or cash investment to realise their potential.”

BetMGM: Growth or Problem Child

Meanwhile, in North America, the growth of BetMGM is critical, not just for alleviating pressure but also as a bellwether for Entain’s overall health and appeal to investors.

Yet the joint venture finds itself at a crossroads, as concerns linger over its relationship with JV partner MGM Resorts and whether BetMGM can recoup the heights of its valuation prior to the 2023 proceedings.

Ivor Jones notes that the narrative remains that “BetMGM is still the jewel in the crown. Eventually, it should be owned by MGM in its entirety; only timing and, of course, price are uncertain.”

Partis notes that the spotlight will be on BetMGM’s litmus test of expanding its tech and platform capabilities: “When and if MGM comes back to acquire the other half of the JV, it will want to acquire the technology with it.  Migration in such a competitive market simply presents too great a risk.  

“There is strong corporate logic in paring back the current business to a more digestible business that MGM may want to own.  Brazil, the UK and the US as key markets make a lot of sense.”

Recovery at Ground Zero

In recovery mode, Entain stands at ground zero where change is not just an option but a necessity, as the PLC grapples with past failings to navigate an uncertain future, as the industry watches with bated breath the movements of gambling’s most speculated company.

Ivor Jones concluded: “Entain does not need to fire on all cylinders all at once. Indeed, if it did, it would undermine management’s claim that it had been spreading resources too thinly. 

“But the UK and Australia need to show signs of responding to treatment so that investors can have some faith that the whole business can return to healthy growth one day.”

Paul Richardson added: “The CEO appointment will be crucial, as Entain needs an experienced leader and industry champion who can lead the reshaping of the business and put what is fundamentally still a really strong business with technology at its heart on a path to a recovery.”

Check Also

SBC News BetMGM and Chris Rock ad ruled in line with UK ASA code

BetMGM and Chris Rock ad ruled in line with UK ASA code

BetMGM’s launch in the UK has attracted some criticism directed to the Advertising Standards Authority …

SBC News Entain concludes messy 2023 on £879m loss as UK/Euro headwinds continue 

Entain concludes messy 2023 on £879m loss as UK/Euro headwinds continue 

Entain Plc has closed its full-year 2023 accounts declaring corporate losses (after tax) totalling £879m …

SBC News BetMGM revenue flies near $2bn mark in 2023

BetMGM revenue flies near $2bn mark in 2023

Entain plc’s and MGM Resorts’ North American co-venture BetMGM has delivered its financial performance report …