8 Jul: Entain on the up ahead of date with destiny

Entain H1 trading update, GAN Q2 pre-announcement, Betsson Q2 trading update, Ohio June GGR, Jefferies sector note, +More

Jul 08, 2021

If you’re an Entain shareholder and English then only two dates matter this morning. The Euro 2020 final this coming Sunday and July 19 when MGM can return to the table with a takeover offer should they so desire. If they do, Entain’s strong predicted H1 numbers strengthen the case that any renewed offer will have to be substantially above the previous £8.1bn ($11.2bn) takeout bid. Meanwhile, GAN has pre-announced forecast-beating Q2s and Betsson says Euros/Copa America-boosted sportsbook has fueled record operating profits. Betsson’s sportsbook margin performance, in particular, provides an indication of what might be in store across the sector in the upcoming reports.

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Entain trading update

The top line

Group NGR was up 11% in H1 and up 42% in Q2, excluding Germany Q2 online NGR was up 32%. Online revenues were up 22% for the 22nd quarter of consecutive growth (20% CAGR). Retail was down 42% due to ongoing COVID19 restrictions. The group enjoyed strong performances in Italy (+76%) and Brazil (+153%).

Online gaming NGR was up 47% on constant currency compared with 2019. The acquisitions of Enlabs and Bet.pt contributed 4% to online NGR. In the US BetMGM expects Q2 NGR of around $350m and was number two in sports betting with 24% market share and number one for iGaming with 29% share and 21% share over the two verticals.

Retail estates in Belgium and Italy reopened in early June. In the UK retail volumes were around 10% lower than pre-pandemic levels as restrictions have gradually eased.

FY21 EBITDA to range between £850m-£900m, ahead of consensus. The group agreed a five-year £590m revolving credit facility, replacing its existing £535m RCF due to expire in March 2023. Entain also agreed an additional €300m term loan to fund corporate development and M&A.

It’s coming home (?): Entain’s geographic spread and “being a global brand means we’re not seeing an over-reliance on one region. In the UK if England win (the Euros) it will be painful, but with so many regions active it will balance out for us,” said CFO Rob Wood. CEO Nygaard-Andersen added that excluding Germany, the group was “extremely pleased with all major markets growing double-digit.”

US bonus: In the US, the market is so competitive that BetMGM will continue investing in marketing and bonusing to continue growing its share of market. Wood said the group was comfortable with its “long-term CPA targets of $250”, although these will also depend on seasonality and the timing of new state openings.

Marketing spend will continue “ticking down because NGR is outperforming, rather than any changes in marketing spend”. Wood added that at midpoint FY, “we’ll spend same in H2 but as a percentage of NGR it will be around 20% rather than 21%.”

The 1% reduction is positive but much was still to be determined because of delays to reopenings in Europe and subdued retail trading in the UK up to 17 May.

In-house expertise: Entain CEO Jette Nygaard-Andersen said the doubling of the group’s investment into its in-house games studios was an opportunity to bring “more exciting and exclusive content to our customers”. One of the reasons behind the investment was that when the group rolled out in-house content in the US 30% of BetMGM customers played the products, “so we would rather focus on in-house content production” rather than bringing it in from outside and having to share revenues.

Marginal gains: Wood said Entain’s strong margins of 13% (vs ~11% pre-COVID) came as a result of a change in customer mix during the lockdowns, as “more retail betting patterns moved online and this was helped by favourable sporting results.” “We’ve been on a good run,” he added. However, Wood made the point that he expected margins to move back towards “around 11% and maybe closer to 12%, but 13% is not the new normal for margins”.

Structural changes to the client base were also having an impact, with the group targeting more “recreational players and some unwanted customers no longer with us”. “Our marketing reflects that and is focused on products that produce strong margins: same race multis, ‘5-a-side’ bets, Betbuilder and request-a-bet products.”

The Euro football tournament has led to more bets and higher stakes and “so many knockout games going to extra-time helped a lot,” he added. Overall the tournament will add around 2% to FY21 revenues, but more important will be the customer acquisition numbers and “how valuable they prove over the course of the year,” said Wood.

GAN Q2 pre-announcement

The top line

GAN said Q2 revenues are to hit $34m-$35m vs. $24m estimates. FY21 guidance increased to $125-$135m vs. $106m estimates. GAN’s FY21 guidance was up 23% to $125-$135m and compared favourably with the $106m consensus.

Favourable sporting results helped generate strong margins of 9.7%, compared to 6.8% in Q1.

Street beats: The growth was driven by controlled marketing spend and “stronger than expected performance” of the company’s Coolbet sportsbook in Latin America and Northern Europe, the group said. Analysts at Macquarie reacted positively to the revenue beat, saying it was “well above our consensus-matching estimate of $24m”. GAN anticipates positive adjusted EBITDA for Q2 of $3m-$7m as higher than expected revenues offset the strategic investments in personnel and technology and well above Street estimate for a slight loss for the year.

Cool runnings: GAN’s recently-acquired sportsbook Coolbet brought in most of the revenue growth from Latin America and Northern Europe and was “performing significantly ahead of plan”. The $176m acquisition carried out in December 2020 had doubled GAN’s revenues and was proving even more attractive than at first thought, with implied growth of 49% and Coolbet enjoying 46% CAGR. Coolbet forecast EBITDA break-even in 2020, but with the projected $20m revenue growth in 2021 “we expect accretive EBITDA contribution,” said Macquarie.

Betsson Q2 trading update

The top line

Record EBIT expected between SEK375-385m ($43.4-$44.5m) or revenues of between SEK1.74bn-SEK1.75bn. EBIT up between 72-77% YoY and 36-39% QoQ.

Scandi high: Betsson says the all-time high expected EBIT number for Q2 has been driven by Euro 2020 and Copa America-fueled sportsbooks activity alongside stronger margins - 8% versus the eight-quarter rolling average of 7.4%. Betsson credited the sponsorship of Copa America. Without splitting figures out, Netsson said the sportsbook performance had driven a higher share of total revenues from sportsbook. Betsson will report its full Q2 numbers on 22 July.

Ohio June GGR

Cooling off: Ohio continues to see a cooling off in casino and racino GGR with the June number down 5.9% on May though it was still 21.9% up on Jun19. Slot handle rose 22%. Penn’s four Ohio properties led the way with a 20.5% increase on Jun19 but down 6% MoM.

Jefferies sector note

Expectation management: Noting the positive commentary around US gaming - particularly the pre-announced Q2s and the monthly GGR numbers - Jefferies say the key risk now is that expectations are growing and comparisons will become “increasingly challenging.”

“With 1Q21 top line performance generally positive and margin growth of 500-1,500 bps, the prospects for flattening as 2021 progresses is considerable,” the Jefferies team warns.

Still, while mindful of the “complexities of the group”, the analysts go on to suggest that gaming remains “broadly compelling” with top picks, MGM, Churchill Downs and Caesars holding out the prospect of multiple drivers.

Newslines

Countrywide coverage: Betmakers Technology has announced a multi-year agreement for live streaming rights to UK and Irish horse racing to the Australian corporate bookmakers market. The agreements with SIS and RMG covers all 60 tracks. RMG already supplies market leaders Sportsbet and Tabcorp.

Shakermaker: Playmaker says it has added a West Virginia license in order to further strengthen the US presence for its Futbol sites network. Playmakers now hold seven US licences including New Jersey, Colorado, Indiana, Michigan, Pennsylvania, and Tennessee. Futbol Sites has active affiliate partnerships with DraftKings, PointsBet, bet365 and BetMGM among others.

Rocky Mountain Road: WynnBET will be the sports betting partner of the Colorado Rockies MLB team. The deal is part of a multi-year agreement that will enable WynnBET to access the club’s digital and media assets, advertise at the team’s Coors Field stadium, host hospitality events and activate promotions during Rockies' home games.

Breesy does it: PointsBet has announced NFL Hall of Famer Drew Brees as a global brand ambassador in a deal which also sees Brees become a PointsBte shareholder.

Koukai Dee: SciPlay has acquired Finnish casual mobile games developer Koukoi in order for the team there to take over the development of a new casual game concept, called Project X, and future games pipeline.

Reves de hoops: Sportradar has announced a rights deal with Ligue Nationale de Basket (LNB) in France that encompasses data collection and distribution, AV rights, media rights and integrity services. Sportradar will now distribute LNB’s in-game data though its recently acquitted Synergy Sports courtside data collection system.