Entain has reaffirmed that M&A “continues to be a key part of our growth” as the group’s BetCity acquisition edges towards completion amid a weaker macroeconomic environment reducing customer spend through the first half of the year.
Addressing an array of issues in a trading update investor call, Jette Nygaard-Anderson, Entain CEO, suggested that “the pipeline of opportunities remains exciting” following a Dutch manoeuvre earlier this month.
As Rob Wood, CFO and Deputy CEO at Entain, echoed the sentiments, Nygaard-Anderson noted that BetCity “gives us a strong foothold before re-entry of our brands, Bwin and Party.
“It also basically leaves our leverage in a good place so there’s still room to invest. So, we are as active as ever on M&A and remain really excited about our pipeline,” she said.
As an avalanche of ministers headed to the exit in the UK, including Chris Philp, DCMS Minister for Tech and Digital, ahead of a resignation by Prime Minister Boris Johnson yesterday (Thursday 7 July), talk inevitably turned towards a Gambling Act white paper delay or even potential amendments.
“I think on the GAR, listen, I’ve adjusted my notes on the white paper on the GAR the last 24 hours for this call,” Nygaard-Anderson continued.
“And we don’t know when it will come out. It’s probably unlikely that it comes out before the summer recess [July 21 to September 5], but as you mentioned and as Chris Phillip said this morning, it is with number 10. So we know that the process is working and it’s going through the commentaries and so forth.
“And yes, it can still be amended and it will also be consulted on once it’s published. However, we are quite confident that the process is working. So number 10 and treasury are taking the different comments in and they still are.
“I’ve seen reports that they’re over 2000 operators right now in Brazil”Rob Wood, CFO and Deputy CEO at Entain
“So I suspect that there is still ongoing work around that, but they will see when it comes out, whether it can still come out before the summer recess process, probably unlikely, but then after the summer and before potentially Boris steps down.”
The topic of Brazil also formed a central theme throughout, where Entain says that “intensifying” competition “has slowed the rate of growth”.
Despite net gaming revenue recording a 26 per cent uptick through Q2 across the region, this was “lower than we had been expecting” and resulted in a one to two percentage point drag versus previous expectations.
“We continue to lead that market and we remain very excited by the long term prospects of the country,” Nygaard-Anderson asserted, before moving on to voice expectations of a delay to country’s regulatory process with licensing expected by mid-2023.
“It’s interesting looking at the competitive intensity over there,” Wood stated. “It’s not just some of the larger operators positioning themselves ahead of regulation.
“It’s also a very large number of smaller unlicensed or lower quality operators. I’ve seen reports that they’re over 2000 operators right now in Brazil. So clearly a licensing regime will help tidy that up.”
With the UK reported as being down 15 per cent during the first half of the year, driven by lower spend per head, the cost of living crisis, tough comparatives driven by lockdowns, and closure in the Netherlands ahead of licensing produced drawbacks for Entain through Q2 and H1.
As retail bounced back with “very large” growth percentages, driven by a continued digitalisation of its retail estate with gaming machines and self-service betting terminals, the current economic environment, coupled with a Dutch delay, saw online record decline through the three and six month time frames.
“It’s probably unlikely that it [white paper] comes out before the summer recess”Jette Nygaard-Anderson, Entain CEO
Entain noted that the group now expects the second half to deliver mid to high single digit NGR growth, leaving online flat for the year.
“Firstly, whilst our business is resilient to weakening consumer sentiment, we’re not immune from it,” Wood commented.
“So given the headlines over the last few months, it’s not surprising we are seeing some moderation in spending by customers.
“Our active numbers remain strong, but we estimate that spend per head is down around four to five percentage points versus our expectations for Q2, due to the macro environment. Let me put that another way.
“In spite of the gloomy economic headlines and backdrop, our strong actives show that our customers are still playing with us – They’re just spending around 95 per cent of what we had expected them to. So, still spending at 95 per cent is why we see our business as relatively resilient to macro conditions.
“Additionally, we need to digest the delay in Netherlands licensing and therefore we now expect the second half to deliver mid to high single digit NGR growth leaving online NGR for the year around flat.”
As Nygaard-Anderson added: “Our track record on M&A is strong, and we continue to grow through acquisition. The underlying growth dynamics of our markets remain compelling with an ever growing and broadening audience, engaging with online betting and gaming.
“New markets are regulating opening up further new opportunities. So we look at a potential total addressable market of over $160bn as we grow in existing markets, into new geographies and into new verticals, creating a market opportunity three times larger than we operate in today.
“And, of course, all this growth potential is underpinned by our Entain platform that enables us to outperform our markets. So I remain extremely confident that as we continue to execute on our strategy, we can deliver significant upside to our shareholders.”