The Entain (LSE:ENT) share price has been on the slide for some time now. After rising above 2,210p in September 2021, it’s fallen all the way back to just 780p. That’s a wealth-shredding 64.5% drop!
The FTSE 100 betting stock is down 6% today (7 March), bringing its decline to 22.5% in just the last three-and-a half-weeks.
Yet, zooming out over five years, it’s actually up around 34% (excluding the odd dividend here and there). That’s better than the FTSE 100’s equivalent return, including dividends.
So what on earth’s going on here? And is this a potential turnaround stock for my ISA?
2023 results
Today’s share price fall relates to the betting giant’s earnings release. In this, we saw that net gaming revenue (NGR) rose 11% year on year to £4.83bn, supported by a healthy 23% increase in online active customers. Underlying earnings rose 1% to just over £1bn, which was ahead of an expected £939m.
If that was the end of the story, I think the share price would have reacted positively. However, it wasn’t.
There was a whole raft of one-off charges, including a £585m fine related to an HMRC investigation into its legacy Turkish business. This meant the Ladbrokes-owner actually recorded a post-tax loss of £879m for the year.
Furthermore, the company expects significant regulatory changes in two of its largest markets this year. In the UK, there will be the implementation of new stake caps on online slot games. Meanwhile, regulators in the Netherlands have proposed tighter deposit limits from the second quarter.
Management thinks these could reduce this year’s EBITDA by approximately £40m. So the company is flagging a potential hit to profits from regulation, which is likely weighing on the share price today.
Entain is also still hunting for a new permanent CEO following the departure of Jette Nygaard-Andersen in December.
Seeking silver linings
Overall though, I think there are a few things to like here. The firm owns established brands like Coral, Ladbrokes and Europe’s bwin.
It also has a 50% share in the fast-growing US online brand BetMGM. NGR at this joint venture grew 36% to $1.96bn last year, helping drive a positive EBITDA in the second half of 2023.
Meanwhile, the firm remains on track to improve efficiency and deliver £70m of net cost savings by 2025.
Finally, there is now a restored annual dividend, with a total payout of 17.8p per share for 2023. The dividend yield currently stands at 2.2%.
Should I bet on a turnaround?
The stock is currently trading at about 19 times 2024’s forecast earnings and just 12 for 2025. That is significantly lower than rival Flutter Entertainment.
Therefore, the share price could be set for a big turnaround at some point, especially if a new CEO impresses early on.
For me though, further gambling regulation is a constant risk to profits across the sector. Any government anywhere could implement them at any time. This continues to put me off the shares.
However, this is just my own way of thinking. Looking at Entain stock dispassionately, I think the worst may be fully priced in here.
I’m not buying it. Yet I’d be tempted to consider this stock if I wanted discounted exposure to the long-term growth of global online betting.
