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Entain interim chief wagers that worst turbulence has passed

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As a former head of Scotch whisky group William Grant, Entain’s new interim chief Stella David should be familiar with the works of Walter Scott. She and Entain shareholders may struggle to look back on perils past and smile, however. 

Entain, previously called GVC Holdings, is a London-listed gambling group behind brands such as Ladbrokes, Coral and Sportingbet. It owns high street bookmakers in the UK, but also online sports betting and gaming operations in a number of big markets, including the US.

Much like Big Tobacco or Big Oil, gambling companies face a dilemma. Their legacy businesses in mature markets face stricter scrutiny and regulation. To outweigh this, they are trying to expand into new product areas and countries that are overturning betting bans.

David has been parachuted in to the top job at Entain following the immediate departure on Wednesday of its former chief executive Jette Nygaard-Andersen. Nicknamed “private Jette” for her reliance on non-commercial flights, she had been under pressure over a 38 per cent fall in Entain’s share price this year. Investors had also questioned a costly bolt-on M&A strategy. Nygaard-Andersen had signed off on 11 deals in less than three years at a cost of more than £2bn. Some of those businesses have already closed. David will have a rough journey herself to restore confidence.

Entain’s shares now trade nearly 40 per cent lower — worth some £5bn — than the level of a 2021 all-stock offer for the company by MGM Resorts. Just as painfully, later that year DraftKings examined a deal that valued Entain’s equity at £16.4bn.

Share price rebased

To be fair to Nygaard-Andersen, fixing Entain has not been easy. It still suffers a hangover from its former strategy, where it operated in unregulated markets. Entain expects exits from so-called grey markets to shave £100mn off earnings before interest tax, depreciation and amortisation (ebitda) this year. It will take a £295mn hit from stricter regulation and licensing conditions in its mature UK and German markets. 

In December, Entain also agreed to pay £615mn for failing to prevent bribery at its former Turkish business. The payments over four years will hamper its ability to deleverage. Net debt to ebitda, around 3.2 times, should stay there in 2024.

That explains why its forward price/earnings ratio of 15.6 times sits below its five-year average and peer Flutter on 26.5 times.

 Regulation has been eating into Entain’s profits

David must reverse market share losses in key markets, including the US. Its 50/50 US joint venture BetMGM was slower than some rivals to upgrade its technology.

Column chart showing Ebitda $mn BetMGM is targeting $500mn of Ebitda by 2026

At least punters can use the same account. Previously they had to use a different wallet if crossing state lines. Improvements should pay off, although BetMGM will not generate ebitda above $500mn before 2026.

Those with steady nerves might smile, seeing a buying opportunity in Entain. But they will need to be convinced the losing streak is over.

6G: networks first need some profitable returns on 5G

Legacy operations also weigh down the businesses of mobile network operators. The latest generation of cellular phone system has yet to impress.

This month, a consortium of global telecoms standards organisations declared plans to work on a sixth generation of superfast wireless cellular communications specifications. But consumer take-up of 5G has been lacklustre. One wonders whether 6G, due out next decade, will attract much attention.

Mobile carriers such as Verizon, AT&T and T-Mobile promised 5G networks would transform our lives. Auctions for bandwidth hit a record in 2021, when Verizon bid more than $45bn. Yet many smartphone customers struggle to notice any difference.

About two-thirds of US mobile phone customers have tried 5G networks, according to a survey by Global Wireless Solutions. Still, ABI Research expects more subscribers to use 4G by the end of 2023.

Blame the way that 5G was rolled out. Upgrades were piecemeal and offered little improvement. Extra speed, capacity and connectivity available on standalone networks have yet to be used fully.

The 4G networks released in the early 2010s enabled mobile phone users to stream videos, play games and make conference calls. 5G can be used for high-quality virtual and augmented reality and allow instant communication between devices such as autonomous vehicles. But these latest functions have yet to gain mass appeal.

New 6G could enable data speeds up to 50 or 100 times faster than 5G. Companies such as Huawei and Nokia say it should be ready to roll out in the early 2030s. Both the US and China are determined not to let the other gain an advantage.

However, data from CB Insights shows that mentions of 5G during earnings calls peaked in 2021 and have since fallen. Network operator capital spending growth is expected to dip next year. Operators want to see better returns on their investment in 5G before they contemplate further network upgrades.

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