Investors in the FTSE 100 stock Entain (LSE:ENT) have had a crushing year. Shares in the betting conglomerate, which owns Coral and Ladbrokes, have lost half their value since September 2021.
But there could be a significant turnaround story on the cards.
Analysts say profits could climb 80% higher between this year and next.
That would mean Entain’s earnings to jump from £24.2m in 2022 to around £42m in 2023. If correct, the share price should respond accordingly, spiking higher.
So at this beaten-down level, the Entain share price is looking attractive.
How it fell 50%
Entain became one of the UK’s 250 largest companies in 2016. Just four years later, it joined the FTSE 100.
But in the last two years it has been one of the worst performers on the Footsie for shareholder returns.
The board bailed out of two potential takeover bids, scuppering investor hopes for a significant payout.
The first came from casino giant MGM Resorts in January 2021, valuing the company at £8bn. The next was an offer from US betting and gaming firm DraftKings that put a $22.4bn (£17.6bn) price tag on the business.
Since then, the Entain market cap has dropped to just under £6bn.
Trouble at the top
But the removal of CEO Jette Nygaard-Andersen after two years of underperformance could light a fire under the beaten-down share price.
Her departure comes after a £615m settlement of a bribery case over a business Entain owned in Turkey. This was just the most recent complaint, with shareholders in revolt over the company’s direction in the last 24 months.
Full-year profit was 88% lower in 2022 than 2021. But analysts see much better numbers on the cards for this year and next.
Growth story
Entain’s brands have about 18% share of the highly lucrative sports betting market in the US. And a planned shift back to high-growth markets in Brazil and New Zealand could see Entain outperform.
Betting and gaming companies in general should be a licence to print money. We know in advance that the house always wins.
Perhaps it won’t be immediate. Although Entain shares have bounced hard from 795p on 4 December to sit around the 980p mark, as of mid-December. That represents a 23% lift, suggesting that there is significant appetite for the shares. It is nowhere near the 2,210p peak of two years ago, though.
But the CEO’s ouster, along with installing an activist investor on the troubled board, could signal one of the FTSE 100’s biggest turnarounds.
Use intelligence
The key risk here is that Entain does not perform with interim CEO Stella David and a new board installed. That could mean it falls so low to be kicked out of the Footsie altogether. I would expect its value to plummet thereafter. And a takeover — probably not at a premium to the share price — would likely follow.
Yet, finding undervalued, profitable companies has provided me with my best stock market returns.
And if we can take anything from Warren Buffett’s strategy on his way to a £120bn net worth? It is that the “intelligent investor is a realist who buys from pessimists and sells to optimists.”
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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
