Despite reporting a fall in after-tax profits today, shares in Entain PLC (LSE:ENT) moved 6% higher.
Normally a fall in profits would result in shares going the other way, but for investors in the owner of Ladbrokes and Coral, it was all about what’s in the next furlong.
Two key factors arguably got shareholders excited.
The €600mln acquisition of Croatian sports betting company SuperSport, in which Entain plans to take a 75% stake, and its US joint venture BetMGM gaining market share, with the future looking brighter for the FTSE 100 company despite a fall in profits.
SuperSport acquisition
The deal to acquire SuperSport is part of Entain's ongoing expansion into Europe.
Following on from its purchase of Dutch sports betting company Bet City in June, the deal will see the pair join to form Entain Central and Eastern Europe.
SuperSport already has a 54% market share in Croatia, making it the largest sports betting provider in the area.
Perhaps more importantly for Entain, Supersport generates most of its income from its online sports betting and iGaming business, an area in which Entain has struggled, reporting a 7% decline in online gaming revenue.
This is of course all good news for Entain, according to analysts at Peel Hunt, which said, “given Entain’s track record with acquisitions we regard this transaction positively.”
Chief executive Jette Nygaard-Andersen said the European sports betting market is already valued at £5bn and is growing at 10% a year.
If she is right, Entain could possibly be entering the market with better odds and beat rivals in gaining key market share, even making further acquisitions down the line.
BetMGM won’t be a 'barnacle' forever
BetMGM, a joint venture between Entain and MGM Resorts International (NSX:MGM), was founded over four years ago.
The JV is heavily focused on the United States, where online gaming and sports betting is being legalised in many states after changes to US law in 2018, which allowed states to regulate their own gambling rules.
Using their expertise in other regions, Entain and a select few UK groups, such as Flutter Entertainment PLC (LSE:FLTR) got in at just the right time, with nearly two-thirds of states now legalising the practice.
However, for some time, BetMGM has been losing money as opposed to making it.
These latest results showed Entain booked a £108.6mln share of losses on the joint venture, £30.4mln higher than last year as investment continues to be poured into the brand’s expansion.
The US business “will not always be a barnacle”, pointed out broker Peel Hunt.
Analysts at the broker said that much of Entain’s growth this year and into next will be “concealed at the bottom line by BetMGM’s losses”.
But profitability is “coming closer,” which will make the value in Entain much clearer.
BetMGM is expected to generate full-year net gaming revenue of US$1.3bn, with the group guiding to profitability next year.
So, despite reporting a fall in profits, which was somewhat expected, much of the value in Entain lies in its future offerings.
Should BetMGM continue on its path to profitability, and seek further expansion into Europe, the top line figures may look significantly better this time next year.