Month: November 2023

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Entain’s price target has been slashed from 1,450p to 820p, which is 2.9% lower than the closing price yesterday (27 November). Monday’s 844p closing price was also 1.7% less than the 859p it closed at on Friday.

This drop came as Goldman Sachs announced its downgrade of the Ladbrokes and Bwin owner. The reason for this, Goldman Sachs said, was due to Entain having problems with growth during recent months. Goldman Sachs said this is the result of regulatory headwinds, increased competition and market dynamics. 

This, it added, has particularly impacted Entain’s online gambling operations. Goldman Sachs has forecast Entain’s pro-forma online growth to be negative in Q4 of 2023 and H1 of 2024. The division, it added, is not expected to return to growth until the second half of next year.

Such is this level of concern that Goldman Sachs is also cutting earnings per share estimates for 2024 and 2025. The bank says this will be approximately 30% lower than previous stated, adding that free cash flow has also deteriorated.

BetMGM losing market share in the US

Goldman Sachs picked out several core issues currently impacting Entain. These include how its BetMGM joint venture with MGM Resorts International has lost market share in the US in recent times.

In its Q3 update, Entain said BetMGM held an 18% market share in US states where it offers online sports betting and igaming. This was level with Q2 and only slightly ahead of 17% during the first quarter.

Back in August, it was also revealed that MGM was launching BetMGM in the UK without Entain. Instead, MGM is working with LeoVegas, with the international platform utilising LeoVegas’ technology and platform. LeoVegas was acquired by MGM Resorts last year for $604m.

Incidentally, BetMGM is due to publish a business update next week on 4 December.

Entain’s £585m CPS settlement another reason for concern

Goldman Sachs also pointed to last week’s settlement with the Crown Prosecution Service (CPS) over historic activities in Turkey. On Friday, Entain announced an in-principle Deferred Prosecution Agreement (DPA) with the CPS over the issue.

Terms are in line with the provision announced on 10 August. Entain has agreed to pay a financial penalty plus disgorgement of profits totalling £585.0m (€674.3m/$738.9m). It will also make a charitable donation of £20.0m and contribute £10.0m to CPS and HMRC costs.

These will be paid in instalments over the term of the DPA. This will run for a period of four years from the date of the final court approval. Entain will seek final judicial approval in court on 5 December.

While the figure was quoted back in August, Goldman Sachs said this was still larger than expected. As such, it says it will impact performance at Entain moving forward, with the downgrade reflecting this.

Entain maintains that the operations in question are no longer part of the business and were sold off by the legacy GVC business in 2017. However, the case was enough for HMRC to launch a large-scale investigation in 2020.

Previously, Entain said the inquiry targeted former third-party suppliers. However, it later acknowledged historical misconduct involving former third-party suppliers and employees of the group may have occurred.

Changing face of Entain

The case led to major changes at Entain. Days before the investigation was confirmed Kenny Alexander stepped down as CEO. Shay Segev, Alexander’s replacement, moved to sports streamer DAZN, with Jette Nygaard-Andersen moving in to the CEO role.

Entain also shifted its place of management and control from the Isle of Man to the UK. This led to its tax residence moving as a result. In addition, it rebranded in 2020 to highlight how the corporate make-up of the business was differentiated from previous operations as GVC.

However, more bad news came in August 2022 when the GB Gambling Commission ordered Entain to pay a record £17m for social responsibility failings. This led to Commission chief executive Andrew Rhodes warning that the regulator could revoke Entain’s licence in the event of further breaches. Entain also paid a £5.9m settlement for similar failings in 2019.

Financial position and planned cost savings

While Entain reported a record H1 2023, its Q3 update showed online net gaming revenue growth had slowed to single figures.

Not long after this, Entain chairman Barry Gibson and CEO Nygaard-Andersen significantly increased their shareholdings. The chair’s spouse, Brenda Gibson, also increased her holding in Entain from 41,902 shares to 57,434. 

In addition, senior independent non-executive director Stella David secured a further 95,025 shares and non-executive director Rahul Welde purchased 21,644 more shares.

Also in its Q3 trading update, Entain unveiled Project Romer. This set out a goal of reaching an online EBITDA margin of 28% by 2026 and 30% by 2028.

To achieve this, Entain plans to simplify the group to improve operational leverage and drive cost efficiencies. This will include making cross cost savings of £100.0m by 2025.

Howell will move into the role some time before June 2024, replacing Daniel Renshaw, who left Tabcorp in August. Damien Johnston has been acting as interim CFO since September.

Howell joins Tabcorp from Coles Group, where he is currently general manager for liquor finance and network optimisation. He also spent time as general manager of group strategy, business development and investor relations at the retail liquor network.

Prior to this, he held senior investment banking roles at Rothschild and Goldman Sachs in Australia and New York. Howell also worked at Ernst and Young and has been a director at Queensland Venue Co since May 2019.

Tabcorp managing director and CEO Adam Rytenskild welcomed the appointment, saying Howell is “perfect” for the business.

“Mark is the perfect fit for Tabcorp as we deliver our transformation,” Rytenskild said. “He’s passionate about our growth story and dynamic in his thinking.

“Wagering is one of the most competitive industries in Australia and Mark comes from an equally competitive customer-focused industry. His experience leading finance teams at Coles and working closely with investors will be invaluable moving forward.”

Tabcorp reveals revenue decline in Q1

The appointment comes after Tabcorp last month reported a 6.1% year-on-year decline in revenue in Q1. This occurred despite an increase in digital wagering turnover.

Wagering and media revenue fell 5.4%, reflecting the impact of lower fixed odds yields due to racing and sports results. Digital wagering revenue also slipped 3.9% but digital wagering turnover defied softer market conditions and increased 1.0%.

As for gaming services revenue, this was down by 12.9% on the previous year. Tabcorp says this was primarily due to the removal of eBet revenue following the sale of the business in February.

Also in relation to gaming services, Tabcorp said it is close to finalising the planned sale of its Max Performance Solutions business.

Penalties in Victoria and New South Wales

Tabcorp was also dealt a number of regulatory blows in Q1. The business was issued fines in both Victoria and New South Wales (NSW) for a number of failings.

First, Tabcorp was fined a record AU$1.0m in Victoria. This related to its conduct when its Wagering and Betting System (WBS) went down during the 2020 Spring Racing Carnival.

The Victorian Gambling and Casino Control Commission (VGCCC) blasted Tabcorp over its actions. It said the operator did not voluntarily provide adequate information about the outage and criticised its conduct during the investigation. Tabcorp was also criticised for its “repeated failure” to comply with directions.

Meanwhile, Tabcorp was fined a further $15,000 for breaching advertising and promotion rules in NSW.

Tabcorp was found to have advertised a promotion on its website including an inducement to gamble. The ad could be seen by anyone who visited the website, whether they had an account with Tabcorp or not.

Tabcorp recoups funds in tax settlement

There was some better news for Tabcorp in Q1 when it was refunded $83.0m after resolving a tax dispute with the Australian taxation office (ATO).

This relates to income tax treatment of payments for various licences and authorities. The group said that it paid the disputed amount of tax liabilities and interest in full, with the refunded amount representing 20% of the disputed tax liabilities and interest.

Each proceeding brought by the taxpayers was dismissed. In turn, Tabcorp will pay approximately $37.0m to The Lottery Corporation Limited (TLC) under the businesses’ separation deed.

This means Tabcorp will recognise a benefit of approximately $45.0m after tax from the ATO settlement. 

Handle for October reached $77.8m (£61.7m/€71.1m). This was 14.8% lower than $91.3m in October of 2022 but 16.5% ahead of $66.8m in September of this year. It was also the largest monthly spend in New Hampshire since a record $103.4m was bet in March 2023.

Of this total, $65.9m was bet on mobile and $12.0m at retail sportsbooks located across New Hampshire. This is according to figures published by the New Hampshire Lottery.

DraftKings remains the only operator offering online sports wagering in New Hampshire. It secured exclusive rights for the state in November 2019.

Betting revenue reaches $8.8m in October

Turning to gross gaming revenue, this amounted to $8.8m during October. This was down 3.3% from $9.1m in October last year but 41.9% higher than the $6.2m that was posted in September this year.

The lottery noted the October figure was the highest monthly total since January’s record haul of $12.6m. This made October the second most fruitful month for operators so far in the 2023 calendar year. 

Breaking down revenue performance, online betting accounted for $8.4m of all revenue in October. Just $334,433 came from retail wagering in comparison.

As for tax, this amounted to $3.8m during the month, with $3.7m coming from online and $144,756 retail.

Year-to-date betting handle in New Hampshire exceeds $220m

Looking at year-to-date performance in New Hampshire, handle for the four months to the end of September was $220.4m. Some $193.2m of this total was bet online and $27.1m at retail sportsbooks.

Revenue for the period amounted to $21.8m. Of this, $20.2m came from online wagering and $1.6m retail.

The lottery also noted that tax for the year-to-date amounted to $9.5m. Online wagering generated $8.8m of this total and retail betting $720,415.

Alexandre Tomic, CEO and co-founder of Alea discusses how important recruitment and job retention is in the igaming industry. From purchasing an Oxyhelp chamber during the Covid-19 pandemic, to vegetarianism and saunas, the team at Alea believe colleagues’ wellbeing comes first.

Although net profit was up in its Q3 report published last Friday, Intralot’s €135m issuance of new shares highlights its exposure to outstanding bond obligations.

According to Intralot’s Q3 report, it lacks the cash resources to cover for the majority of the debt.

Bond obligations and raising of share capital

The maturity date of the company’s outstanding bonds, with an initial nominal value of €500m and currently €229.57m, is 15 September 2024.

In its statement, the company acknowledges that its existing cash resources, which are sufficient to cover the short-term working capital needs of the group, would not be adequate to cover the bond obligation.  

Intralot, therefore, completed a new rights issuance of shares totalling €135m on 30 October. These started trading on the Athens Stock Exchange (ATHEX) on 8 November. 

Commenting on the company’s outlook, Intralot chairman and CEO, Sokratis P Kokkalis, said: “9M2023 results demonstrate Intralot’s new strengths returning to net profits, strong EBITDA growth and cash flow generation, hence fulfilling all the goals we have set out.

“We have recently completed an important share capital increase via rights issues of €135m that attracted wide support, demonstrating that Intralot represents a very attractive investment case.

“I would like to thank all the investors who participated and trusted our vision and capability to deliver even stronger results in the future.”

Q3 earnings

As per its earnings report, Intralot posted a €21.7m (7.2%) consolidated turnover decrease compared with the previous year. In figures, this went from €301.7m in 2022, down to €280.0m in September 2023.

The company’s gross gaming revenue (GGR) accounted for a €5.6m (2.2% gain). However, this failed to offset its overall reduction in consolidated turnover.

Intralot turnover impacted by Malta and Argentina

Breaking down the numbers, a large proportion of the company’s turnover decrease was driven by absence of revenue following the expiration of its Malta licence in July 2022. This accounted for a a GGR revenue loss of €43.9m.

Lower GGR revenue in Argentina also accounted for a €5.3m (13.8%) reduction. This was further affected by the adverse impact of FX currency conversion.

In total, Intralot’s licence expiration in Malta and its higher payout ratio in Argentina (63.0% year-on-year for wagers from licensed operations) did not manage to absorb the increased top line contribution of operations in Turkey and the US, along with its expansion in Taiwan.

Excluding the impact from the discontinuation of its Malta licence, underlying consolidated turnover would have increased by 8.6%.

Breakdown by vertical

Broken down by vertical, lottery games remained Intralot’s largest contributor to group turnover with a share of 56.8%.

This was followed by sports betting, with a share of 19.0%, technology contracts with 12.3%, and video lottery terminals (VLT) monitoring, at 11.8%.

Intralot’s Turkey dependency grows

Intralot’s B2B (management) earnings remained a strong performer, totalling a €16.6m (46.9%) increase for the vertical.

This was driven by strong momentum of its Turkish operations (€16.0m or 77.1%), out of the total €16.6m increase, with its state-affiliated partner brand Bilyoner, greatly increasing its performance due to growth in the online market.

According to Intralot, Turkey’s sports betting market expanded “close to” 1.9x year-on-year.

Performance in Euro terms, however, was partially mitigated by the headwinds in the Turkish lira (60.6% Euro appreciation versus a year ago).

Earnings further abroad

Elsewhere, the company also netted far stronger US performance via its gaming vertical. This saw increased turnover of €4.6m or (4.1% year-on-year), for its numerical, ilottery and instant games.

Croatia was also a strong performer, with a €3.5m increase (64.2%) due to local market growth.

Higher turnover €3.1m (6.3%), was also secured for its Rest of World operations, driven by its new lottery contract in Taiwan.

Rebound in quarterly revenue for Intralot

Despite a net consolidated turnover loss year-on year, on a quarterly basis (1 July 2023 – 30 September 2023), the company secured €104.8m in consolidated revenue.

This was 8.1% higher than during the same period in Q3 of 2022, and a €7.8m increase compared to Q2 of 2023.

Intralot attributes this to a favourable increase in year-on-year sales. This was via its operations in Turkey (Bilyoner), and Croatia, as well as its new contract in Taiwan.

The company’s sales surplus in Q3 of 2023 was also partially offset by under-performance in Argentina.

Operating expenses and EBITDA

Total operating expenses ended higher at €6.3m (or 8.9%) in 9M23 (€76.5m vs €70.2m). This was attributed to rising expenses in the US and Turkey to support top line growth.

On a quarterly basis, Intralot’s operating expenses posted an increase of €8.8m (or 42.6%) in Q3 of 2023 (€29.6m vs €20.8m in Q3 of 2022).

EBITDA increased to €101.0m in 9M23, posting an increase of 14.7% (or €13.0m) compared to 9M22.

Strong EBITDA growth was attributed to its growth regions of Turkey, the US, Croatia and Taiwan.

EBITDA improvement was in part counterbalanced by increased operating expenses and the impact from its Malta licence termination.

On a yearly basis, EBITDA margin on sales improved to 36.1%, from 29.2% in 9M22 (a 6.9% increase).

On a quarterly basis, EBITDA increased by €5.2m (or 15.9%), while EBITDA margin on sales was up 2.4%.

Cash flow

Operating cash flow in 9M23 netted a considerable increase of €29.9m – now totalling €97.6m, compared to €67.7m in 9M22.

Key contributors to this were higher recorded EBITDA year-on-year and a “favourable working movement”.

CapEx in 9M23 was €22.2m, higher by €7.0m compared to 9M22, with US projects consuming most of its CapEx needs.

The group struck a deal last week to acquire 100% of the share capital in the Italian-facing operator. Lottomatica said the agreement places a €639.0m enterprise value on SKS365.

Subject to securing anti-trust and regulatory approvals, the acquisition is due to complete in the first half of 2024. As part of its preparation for the deal, Lottomatica has now set out plans for a major bond issue.

This comprises floating rate senior secured notes due in 2030 and an additional 7.125% senior secured notes due in 2028. The latter are to be issued under the indenture of outstanding €565.0m 7.125% senior secured notes due in 2028.

The split between floating rate and additional notes will be communicated at completion of the offering together with final terms. Notes will be issued on or around the completion date of the SKS365 deal.

Additional €50m credit facility agreement

In addition, Lottomatica has secured additional commitments for revolving cash borrowings under an existing revolving credit facility agreement. This equates to an aggregate principal amount of €50.0m and is contingent on the SKS365 acquisition.

Lottomatica said gross proceeds from the notes and cash borrowings arrangement will be used to help fund the SKS365 purchase. This includes the acquisition fee and certain fees, costs and expenses in connection with the deal.

Funds will initially be deposited into escrow accounts and released when the acquisition completes. Lottomatica maintains its expectations that this will take place in H1 of next year.

Lottomatica plots growth trajectory with SKS365 deal

Upon announcing the deal last week, Lottomatica said that acquiring SKS365 will support its long-term growth strategy. This includes strengthening its position in Italy and expanding its brand portfolio and accelerate its growth profile. 

Omnichannel operator SKS365 has a strong online presence and runs approximately 1,000 retail sports betting points. It counts PlanetWin365 and PlanetPay365 among its brands.

Lottomatica CEO Guglielmo Angelozzi said that these brands would be “highly valuable and complementary” to the group’s portfolio. He added Lottomatica would support SKS365 in its next phase of growth.

Playtech’s loss is Lottomatica’s gain

Last week’s agreement seemingly ended Playtech’s hopes of acquiring SKS365. Playtech opened talks over a possible deal in September, while reports at the time also said Flutter and Lottomatica were interested.

Incidentally, Playtech was the only party to publicly declare its interest at the time. Both Flutter and Lottomatica remained quiet, with confirmation of the latter’s involvement only coming once a deal was reached.

Playtech last issued a statement acknowledging the deal. It did not say whether it would reopen talks or continue to pursue an agreement.

Earnings and revenue growth for Lottomatica in Q3

The acquisition agreement came on the back of a strong Q3 for Lottomatica, during which it reported revenue and earnings growth. Incidentally, Q3 was the first full quarter for the group after its IPO.

This followed a successful first half, after which Lottomatica increased its full-year guidance. The group confirmed this after Q3 growth.

For the full year, Lottomatica expects revenue of between €1.63bn to 1.69bn and adjusted EBITDA of €570m to €590m.