Goldman downgrades Entain to 'sell', slashes price target

The bank said it now believes the inflection of fundamentals will take longer to come through, leading it to cut its estimates for FY24/25 earnings per share by around 30%.

"We have been wrong on Entain, because of: (1) disappointing online growth (owing to a mix of regulatory headwinds, competition, market dynamics, and unfavourable sports results) contributing to material downward consensus EPS revisions; (2) JV BetMGM losing market share in the US; and (3) a larger-than-expected £585mn HMRC settlement," GS said.

The bank said its previous ‘buy’ rating thesis looked for online growth to inflect from 3Q23. It also looked for the US joint venture to become meaningfully profitable in 2024 and potentially return capital to the parents - acting as a catalyst for the JV’s value to be recognised within Entain - together driving a re-rating from a seemingly attractive EV/EBITDA multiple on its prior estimates.

Goldman said that on its new estimates, it views Entain’s valuation as relatively demanding on fundamentals, when set against its broader coverage.

As such, absent external catalysts such as an approach, GS would expect the shares to continue to underperform within its coverage on a 12-month view owing to a weaker near-term online growth outlook and the fact that downward EPS consensus revisions are not yet over.

At 0955 GMT, the shares were down 2.4% at 838.36p.