Entain shares still good value despite "anaemic" first half, says HSBC

The target for the shares has been cut from 1,830p to 1,540p, but that still suggests significant upside from the current 1,157p price as of 1107 BST on Thursday, down 0.7% on the day.

Interim results last month disappointed the market with EBITDA up just 6% year-on-year at £499m, as a weaker-than-expected performance in the online division was offset by strength in retail. The stock has fallen 16% since then.

"We think that the underlying pace of EBITDA growth at the group was flat to slightly negative, once we account for the contribution of M&A, and FX, and if we do not strip out the impact of the continuing tax increases in Australia," HSBC said in a research note.

"Over the course of the year, a lot of geographies seem to have struggled, either as a result of pandemic unwind (e.g. Australia) or competition (Brazil, Netherlands). And that’s before we think about the impact of regulation (UK NGR down -2% YoY, Germany NGR down -30% YoY). A big step up in central costs only aggravated the situation."

Nevertheless, the good news is that the second half "does not require a major improvement in underlying performance in order to hit company guidance/our forecast (which are already pitched conservatively)."

"Faster expansion in 2024 is required but, fundamentally, we believe there is still value at 2024e free-cash-flow yield of 6.1% and price-to-earnings ratio of 15.5x. We therefore retain our 'buy' rating."