Goldman Sachs Downgrades Entain Between Regulatory Turbulence

Goldman Sachs has downgraded its recommendation from buy to sell, dealing a severe blow to Entain, the parent company of Ladbrokes and Bwin. This action was unexpected. The apparent difficulties with Entain’s commercial expansion, especially in its online segment, are the source of the financial giant’s worries.

This downgrade was accompanied by a significant drop in Entain’s price objective, which fell from 1,450p to 820p. Bearish sentiment is reflected in this revised target, which represents a 2.9% decline from the closing price on November 27. Also 1.7% lower than the previous Friday’s closing at 859p was Monday’s closing price of 844p.

Regulatory Headwinds and Fierce Competition

Growth concerns were mentioned in Goldman Sachs’ summary of the difficulties Entain has faced recently. Stronger regulations, more intense competition, and changes in the market are all blamed for the difficulties. Due to the extreme impact on Entain’s online gaming activities, Goldman Sachs has forecast negative proforma online growth in both the fourth quarter of 2023 and the first half of 2024, with a possible rebound only in the latter half of that year.

In addition to the difficulties, Goldman Sachs is significantly lowering its expectations, cutting projections for Entain’s profits per share in 2024 and 2025 by almost 30%. This significant change highlights serious concerns about Entain’s financial performance. These issues include the decline in free cash flow, which suggests that maintaining operating liquidity may prove to be difficult.

Goldman Sachs notably noted key problems that Entain is facing in the industry, emphasizing the declining market share of BetMGM, the company’s joint venture with MGM Resorts International, in the United States. BetMGM has an 18% market share in states that allow online sports betting and iGaming, but its growth has stalled, raising questions about Entain’s competitiveness in general.

The $739.2 million (£585 million) settlement with the Crown Prosecution Service (CPS) on past activities in Turkey adds to the long list of difficulties. Even though it was disclosed in August, Goldman Sachs thinks it will have a bigger effect than first thought and affect Entain’s performance going forward.

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