Goldman Sachs (NYSE:GS) has admitted getting it wrong on Entain PLC (LSE:ENT), the owner of Ladbrokes and Coral.
The investment bank has double-downgraded the betting operator to ‘sell’ from ‘buy’ and slashed its price target to 820p from 1,450p.
"We have been wrong on Entain," the bank said, highlighting a number of reasons behind the change in stance.
Firstly, disappointing online growth, owing to a mix of regulatory headwinds, competition, market dynamics, and unfavourable sports results, which has contributed to material downward consensus EPS revisions.
Secondly, the BetMGM joint venture is losing market share in the US and thirdly, a larger-than-expected £585 million HMRC settlement.
The bank said its prior 'buy' thesis looked for online growth to inflect from the third quarter of 2023, and the US JV to become meaningfully profitable in 2024 and potentially return capital to the parents.
Goldman now expects BetMGM to reinvest a significant amount of any profit in 2024 into the business, in turn delaying the JV’s return of capital to the parents.
It also sees US operators (including BetMGM) that are outside the top-2 in online sports betting, as relatively more at risk from competition from new entrants such as ESPN Bet.
The broker expects the shares to continue to underperform on a 12-month view, although it added the key, external upside risk to its view would be a potential offer for Entain.