Investing.com — Kepler Cheuvreux upgraded to Buy from Hold and raised its price target to 680 pence from 592 pence, saying the gambling company’s planned exit from its Central and Eastern European venture has accelerated its shareholder return timeline by a year.
On a like-for-like basis, the analysts raised their estimates for Entain, though the reported impact is negative due to the accounting treatment of the Central and Eastern Europe operations as discontinued.
Entain’s operations have turned around in both the U.K. and the U.S. over the past two years, according to Kepler. Still, the shares have underperformed due to U.K. tax hikes and lower sector valuations tied to a changed U.S. market. The analysts noted that Entain’s U.S. joint venture, BetMGM, is largely a casino operation with limited exposure to prediction market encroachment, though this hasn’t offset the broader hit from sector valuations.
Entain targets cash flow of more than £500 million in 2028, which Kepler called “huge compared with a market cap of GBP3.3bn.” The analysts believe the company will get “within touching distance” of that target, driven by the expiry of its deferred prosecution agreement settlement, dividends from BetMGM, and lower interest payments. A 10% cash flow yield implies a valuation of £4.8 billion, which discounted back equates to 680 pence per share.
Kepler said investors want a healthy portion of the “robust, non-cyclical cash flow” generated by gambling investments returned through dividends and buybacks. While the analysts had been prepared to wait another year for that outcome, they said the CEE exit announcement “has transformed the situation entirely.”
Starting from £4 billion of debt, the initial sale is expected to free up £0.3 billion at a price of 10 times EBITDA and eliminate a put/call obligation of £0.6 billion. Selling the remaining 47% stake, which Entain has said it intends to do, could generate another £0.7-0.9 billion, leaving 2027 net debt/EBITDA at roughly 2.2 times.
Kepler said this would enable generous shareholder returns as early as 2027, a year ahead of the company’s original schedule.