Entain, the owner of Ladbrokes and Coral, as well as other gambling companies have experienced steep share price falls in the last few months but analysts at Exane believe the “negative moves are mostly overdone.”
Shares in Entain have slipped close to 33% since August, while Flutter, owner of Paddy Power and Sky Bet, has dropped around 15% in the same period.
Over the summer, investors saw several profit warnings from the UK’s leading gambling firms, with “unfavourable betting results”, regulatory headwinds and weakened demand leading to a dampening of sales and profits.
However, analysts at the brokerage firm reckon luck is turning for these industry leaders, with Entain PLC (LSE:ENT) returning to trading at similar multiples to rival 888, albeit with less debt and better exposure geographically, while Flutter Entertainment PLC (LSE:FLTR) is performing well in Europe and has not lost its crown in the US to Draftkings Inc (NASDAQ:DKNG).
“We have seen many recent headlines claiming DraftKings is now the leader in US online sports betting. The headlines are based on gross revenues, and don't take the material impact of free bets into account,” analysts at the London group said.
DraftKings is expected to meet its fourth quarter earnings guidance but there remain questions about whether it will be also able to maintain market share and a gross margin of 50% at the same time.
Only adjusting target prices to consider interest rate rises, the experts at Exane don’t see regulatory headwinds playing a negative role going forward.
Exane analysts added: “The recent warnings from Entain and 888 have raised concerns over further potential regulatory headwinds. We think the worst is probably over, and that Flutter has continued to gain share, especially in online sports betting.
“Concerns over the potential impact of a single customer view across operators' brands also look overdone for the more prudent operators.”
Flutter remains Exane’s top pick, but the group also notes that “Entain offers value after recent share price woes.”
Shares in Entain are flat at around 933p on Monday, while Flutter jumped by over 3% after opening at 12,475p.