Aug 11: Entain makes all points east move

Entain H1, LeoVegas Q2, FOX Corp earnings call, earnings calls in brief, Rank analyst update +More

Earnings+More

Aug 11, 2022

Good morning. On today’s agenda:

Entain announces a new central and eastern Europe JV initiative via Croatian acquisition.
LeoVegas pauses on US expansion ahead of the completion of MGM deal.
FOX Corp. promises “a lot more activity” around FOX Bet and its Super 6 F2P game.

Telephone thing.

Entain H1

NGR rose 18% to £2.12bn while underlying EBITDA was up 17% to £471m.
Online revenue was down 7% to £1.45bn but retail rose threefold to £636m.
Share of BetMGM losses up 39% to £108.6m.
Creation of new Entain CEE JV with EMMA Capital with initial SuperSport acquisition.

Just super: The announcement was dominated by the news of the initiative for central Europe that sees Entain take a 75% stake in a new JV with Czech-based investment firm EMMA Capital.

Entain has paid EMMA Capital €600m for a 75% stake in Croatian operator SuperSport for €600m with a €90m contingent payment in 2023 based on the 2022 performance.
Including EMMA Capital’s remaining 25% stake in SuperSport, the business is valued at €920m.
The deal represents a multiple of 9.6x 2022 EBITDA.
Financing comes via a €700m bridge loan.
An option for 100% ownership of Entain CEE is open after three years.
SuperSport CEO Radim Haluza will lead the new business.

Say what you CEE: The business was founded in 2000 and controls 54% of the regulated Croatian sports-betting and igaming market. In 2020, SuperSport generated GGR of €131m and EBITDA of €65m and Entain said it expected to see growth going forward of 10% a year.

We don’t need another hero: Analyst at Regulus pointed out SuperSport is another “local hero” with strong brand presence and highly focused management. They added that the creation of Entain CEE has a “powerful logic”.
Balancing act: “Creating a mid-tier capital and management structure arguably balances scale, responsiveness and localisation,” Regulus added.

However, they caution that the deal is “not the same as discovering an easy route to emerging market growth”.

Backgrounder: EMMA Capital was previously involved in Sazka (now Allwyn) and Opap where it previously held a third ownership. The company was founded by serial Czech entrepreneur Jiří Šmejc.

ITMA: Advising on the deal on behalf of SuperSport was Oakvale Capital.

Look busy: The SuperSport deal means Entain has completed five acquisitions in the YTD, including the €550m BetCity buyout in the Netherlands and the CA$300m deal for Avid Gaming in Canada as well as smaller deals for Klondika in Latvia and Totolotek in Poland.

Datapoint: At H1 close, net debt nudged up to £2.2bn of 2.3x. FY leverage is expected at over 3x following the SuperSport completion expected in Q4.

Hanging on the telephone: Jette Nygaard-Andersen, CEO, said on a somewhat abruptly cut short Q&A that Entain CEE represented an “innovative and unique approach to expansion in this market”.

Nygaard-Andersen: “This is the vehicle we expect will drive expansion across that region. But that doesn’t preclude us from doing M&A outside of Entain CEE.”

Analyst reaction: Peel Hunt noted that once BetMGM becomes profitable - “and that appears to be coming closer” - the value of Entain overall will become clearer. Jefferies reiterated they expect more attention on the potential for a renewed approach from MGM.

Entain H1 analysis

Mix and match: Acknowledging the “mixed” nature of the online performance, Nygaard-Andersen was keen to point to the tough pandemic comparatives from last year. She noted that despite the NGR fall, the number of actives (unquantified) was at its highest-ever level.

Road ahead: CFO Rob Wood said that in H2 online was expected to resume its YoY growth path.

Momentum play: FY22 forecasts remained in place with EBITDA set to come in at between £925m-£975m.

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LeoVegas Q2

Revenue up 1% to €98m. Excluding the Netherlands, revenue increased 9% and ddj. EBITDA down 15% to €9m,
July trading was flat at €32.8m and +8% excluding the Netherlands.
US expansion plans have been halted ahead of completion of MGM transaction.

On hold: LeoVegas said it has chosen to “pause its expansion to New Jersey” as a result of prospective takeover by MGM. “If the bid is not accepted, LeoVegas can resume the project with a short start-up period,” the company added.

Short and sweet: In what was a short call (just one question from the analysts), CFO Stefan Nelson said that “momentum was good but there were tough comparisons and more volatility with Q221”.

Nelson said some of the group’s marketing investments in Latin America had not produced the returns expected by the group.
“There were also short term hiccups in Ontario where we had to KYC all our players, but it was as expected and we’re positive on growth prospects.”

Golden oldies: Sports-betting revenues were at an all-time high at 12% of group income. CEO Gustaf Hagman said the Expekt brand continued to perform strongly in Sweden and the recently-launched BETUK brand had also performed well.

He added that Expekt was taking market share from bigger incumbents and smaller brands that have effectively exited the market.

FOX Corp earnings call

Lachlan Murdoch hopes for clarity of the Flutter/FanDuel arbitration process ‘by the beginning’ of the Fall.

Sticking with it: During the FOX Corp. Q2 call, CEO Lachlan Murdoch reiterated his company’s “fundamentally strong belief” in the sports-betting business, saying it remains a “huge opportunity” particularly in relation to the FOX sports brand.

Funnel vision: He once again noted the extent to which the FOX Bet Super Six was a “tremendous funnel”.
“That continues to be our strategy and it continues to be very successful.”
See you in September: He noted that once the Flutter arbitration process is clarified, as the new NFL season kicks off, “you'll see a lot more activity around FOX Bet and FOX Bet Super 6.”

Soft soap: Talking about advertising trends, Murdoch added some interesting color to the debate about sports-betting marketing spend, saying that the local station wagering category was “soft” but that it was partly due to a shift towards more national advertising.

Grand national: He said the shift was “pretty interesting and perhaps predictable”. “So where we're seeing softness in local for wagering, we're seeing strength in national for the betting market,” he added.
Good buy from him: He added that “obviously, as more states become legalized” the national platform was an “efficient and a good buy” for the betting operators.

Earnings calls in brief

Accel Entertainment: The team at Deutsche Bank “did the math” on Accel’s new FY22 guidance and assessed that the revenue estimate of between $960m-$980m was $33m below their pre-call estimates, while the new adj. EBITDA guidance of $160m-$165m was $17m lower than the DB estimates.

Wary: They noted that while management said they were not seeing any near-term slowdown, they did strike “more cautionary tone” on revenues.
The positives were that the Century Gaming acquisition means Accel’s revenues are diversified away from Illinois.

Inspired Entertainment: Executive chairman Lorne Weil said that his near 50 years of experience tells him that the most vulnerable companies to recession are those that are highly leveraged, working with thin margins and, in the gaming space, those dependent on destination venues.

We’re alright: “Looked at against this template, I think we're in very strong shape to deal with any economic downturn,” he added.
CEO Brooks Pierce reiterated that the company believes it will pass the $100m EBITDA run rate later this year.
The team at Macquarie said they expect a growing contribution from digital operations, which now constitute 50% of all revenues.

Earnings in brief

NeoGames: Total Q2 revenue, including its share of NeoPollard Interactive, rose 46.4% YoY to $31.3m while adj. EBITDA rose 24% to $10.3m. During the quarter, NeoGames completed the acquisition of Aspire Global which it said would be “truly transformative”.

Diary date: NeoGames will conduct a cal with analysts later today.

Paysafe: Digital Commerce revenue, which includes Paysafe’s gaming-related operations, decreased 4%, primarily reflecting market headwinds related to gambling regulations in Europe as well as the war in the Ukraine.

On the earnings call, CEO Bruce Lowthers said Paysafe continued to see growth in North American online operations, processing more than $2bn in gateway volumes in the first half of 2022.
However, the worsening situation in the European gaming space has led Paysafe to lower FY22 guidance.

Zeal Network: First-half billings rose 8% to €358.3m while revenue rose 11% to €49.4m YoY and EBITDA was up 54% to €16.4m. New registered customers were flat at 292k. During the period, the company received a renewed permit to broker lotteries in Germany until 2029.

Acroud: The gaming affiliate and affiliate network provider said revenues grew 16% YoY to €7.2m while EBITDA rose 55% to €1.8m. NDCs rose 19% to 35k. During Q2 Acroud placed SEK225m of senior secured floating rate bonds to investors in the Nordic and continental Europe.

Guessing game: Acroud repeated that it is considering €9m acquisition but revealed no new details on the potential deal.

Rank analyst update

Keeping the lights on: Looking at the potential hit from the UK’s escalating energy prices, the team at Peel Hunt have downgraded their forecasts for Rank’s operating profit by £25m for FY23 and FY24. “It is clear that energy costs will be dragging on Rank’s profitability,” they suggest.

Warnings: Rank itself has previously wanted twice on FY22 operating profit with its last trading statement suggest it would make £40m for the year compared to its previous forecast of between £47m-£55m.
On a more positive note, with London hotels reported to be trading back at 2019 levels, the Peel Hunt team suggest next week’s earnings update “could restore confidence that overseas casinos customers are coming back”.

SciPlay analyst update

The team at Macquarie said SciPlay had outperformed peers and was “adapting well to a difficult operating environment” thanks to market share gains, growth and a strong balance sheet of $316m.

Despite Q2 results coming in “light at -2% YoY”, this compared with double-digit declines for competitors.

Fruit-bearing: The company’s tech and marketing investments were beginning to bear fruit and FY22 guidance of 10% revenue growth pointed to strong momentum. However, Q4 was also weighted, “which does introduce risk” said Macquarie.

Datalines

Missouri: July GGR came in at $169.4m, up 1.2% YoY. Visitation was down 5.2% YoY while spend per visitor was up 6.7%. Compared to 2019, GGR was up 17.2%.

Maryland: Retail sports-betting produced net win of $1.99m from handle of $15.5m in July. The figures included two ‘demonstration days’ from the new BetRivers facility at BingoWorld.

Newslines

Not so smart: Smarkets has been slapped with a £630k fine by the UK Gambling Commission for a series of anti-money laundering and social responsibility failings.

FanDuel once again topped the charts in Jefferies’ monthly trawl of social media metrics covering average users, web traffic duration and overall visibility. Of the movement in the top five, Penn’s Barstool Sportsbook moved up one place.

FanDuel has also been recommended for final approval for a Nevada license by the Nevada Gaming Control Board. It will allow a FanDuel-branded, but Boyd Gaming-run, sportsbook to open at the Fremont Casino.

Caesars Entertainment and the Eastern Band of Cherokee Indians have partnered up to develop the $650m Caesars Virginia, which officially breaks ground in Danville this week and is scheduled to open in late 2024.