Entain double downgraded by Goldman Sachs over activist circle
Entain (OTC: GMVHF ) suffered a double downgrade from Goldman Sachs, with the bank downgrading the gaming stock to "sell" from "buy" late Monday night.
Goldman Sachs cut its price target for Ladbrokes owners by 43.4% in a downgrade to Hold, but admitted it was wrong about the battered stock. The bank also cited weakness in Entain's online business as one of the reasons for the downgrade, which the operator said in September was to blame for weak 2023 net gaming revenue (NGR) guidance.
We now expect Entain to expect negative online growth in Q4 2023 and H1 2024, returning to positive growth only in H2 2024. ” wrote Goldman Sachs analyst Ben Andrews.
Goldman Sachs added that increased competition, bettors' luck in the third quarter and regulatory issues were among the reasons for the cut in Entain's profit forecast. The operator recently agreed to pay $729 million to HM Revenue and Customs (HMRC) to resolve bribery allegations related to previous operations in Turkey. The company left the country in 2017.
Andrews cut Entain's 2024 and 2025 earnings per share forecasts by about 30%.
BetMGM Thorns around Entain
BetMGM, in which Entain owns 50%, has also put increasing pressure on the operator's performance. A 50/50 joint venture between Entain and MGM Resorts International (NYSE: MGM ) is losing market share to DraftKings (NASDAQ: Code: DKNG) and FanDuel.
To make matters worse, while DraftKings and FanDuel are solidifying their duopoly, competition for remaining market share is intensifying with Bet365 expanding its presence in the U.S. and ESPN Bet and Fanatics recently entering the market.
Previously, Goldman Sachs expected BetMGM to achieve significant profitability in 2024 and potentially return capital to Entain and MGM. Andrews now expects Entain and MGM to reinvest any profits BetMGM makes in 2024 into the company.
This may be one of the reasons some analysts are urging Entain to consider seeking some form of compromise regarding BetMGM, including possibly simply divesting its stake in the unit to MGM. At last month’s Global Gaming Expo (G2E) in Las Vegas, Entain CEO Jette Nygaard-Andersen told attendees The joint venture won’t last forever , but it remains to be seen whether the gaming company plans to exit BetMGM. short term.
Demotion could be motivation for Entain activists
Goldman Sachs' double downgrade of Entain stock comes days after it was announced that Dendur Capital and Sached Heam Capital, two New York-based hedge funds, had taken significant stakes in the stock.
The asset managers made it clear they were activists, urging Entain’s board to give Eminence Capital founder Ricky Sandler a seat. Dendur Capital and Sached Heam also want the board to give Sandler the opportunity to help fill other open director positions.
Goldman's Thomas also cited Entain's weakening free cash flow profile, which could further encourage activist investors to push for a sale of the company, which Thomas sees as a major "upside risk" to the stock.
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Source: www.casino.org