Entain Plc

Entain Plc (LON: ENT) is a Sports-betting and Gaming Company listed on FTSE 100. The Company owns some of the leading brands in the gaming industry and was formally known as GVC Holdings Plc.

Rationale for Valuation – Expensive at GBX 1,280.00

• Despite the strong performance witnessed, the Company’s EBITDA from UK market is impacted by forced retail store closures.
• The short-term outlook remains uncertain, due to ongoing impact of Covid-19.
• The Company is trading near a 52-week high, and Price/Earnings, EV/EBITDA, and EV/Sales multiples are significantly higher as compared to corresponding multiple of the Travel & Leisure industry, reflecting overstretched valuations.
• From the technical standpoint, shares were trading below the short-term support level of 20-day (GBX 1,326.1) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Company’s liquidity may be impacted because of the ongoing circumstances related to COVID-19 pandemic.
• For the various activities, the Company holds multiple licences from regulators globally. The loss of any of these licences may adversely impact the Company's operations, revenues, and reputation.
• The uncertainty about macroeconomic factors and change in consumer disposable income might impact the share of income consumers would spend on leisure activities.

Recent News

On 21 January 2021, the Company has appointed Jette Nygaard-Andersen (currently he is an independent non-executive director of Entain), as a Chief Executive Officer, with immediate effect. Jette replaces Shay Segev, but Shay will remain available in management until 8 July 2021. Further, Rob Wood, (currently Entain's CFO) will be appointed as a Deputy CEO with immediate effect.

Q4 FY20 Trading Update (for the period from 1 October to 31 December 2020, as on 21 January 2021)

(Source: Company Website)

• The Company delivered a strong performance across the year, with an increase in full-year online net gaming revenue of 27% YoY and full-year margins of 1.6pp YoY.
• The US joint venture with MGM Resorts, BetMGM, is now live in 11 states, with a market share of around 18%, an increase in online revenue of more than 130% in 2020 and successful launches in several places.
• Moreover, it saw 20th consecutive quarter of double-digit online NGR growth, with strong customer acquisition growth.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

Despite the impact from enforced retail closures, the Company expects 2020 full-year US net revenues to be in the range of USD 175-180 million, 2020 full-year Group EBITDA to be between £825 million and £845 million and FY20 year-end net debt to EBITDA to be around 2.1x. The Company has entered 2021 with good momentum, supported by the US and core markets' growth areas. However, the short-term outlook stays uncertain, due to the ongoing impacts of Covid-19. Moreover, the Company’s UK and US business was impacted by force stores closure. In the future, the Company may face emerging headwinds and cost pressures. The Group is presently trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 292.70 and GBX 1,494.00, respectively.

Based on the factors as highlighted above, we believe the stock of Entain Plc is “Expensive” at the closing price of GBX 1,280.00 (as on 22 January 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

Superdry Plc

Superdry Plc (LON: SDRY) is an apparel brand with the main focus on providing good quality products. The Company’s products use British style with a mix of Americana and Japanese inspired graphics.

Rationale for Valuation – Avoid at GBX 221.80

• The outlook for the General Retailer industry and the Company seems dim in the near-term. The immediate outlook is also less certain due to the continued impact on the International travel and may face further enforced store closure.
• The Company’s Price/Earnings multiple is in negative zone as compared to the Personal Goods industry multiple, reflecting negative valuation.
• In H1 FY21, the Company’s net margin and Return on equity are in the negative zone.
• The stock has underperformed the index (FTSE All-Share index) during the last year period and delivered a negative return of around 47%.
• From the technical standpoint, shares were trading below the short-term support level of 20-day (GBX 235.4) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Covid-19 outbreak can cause massive supply chain disruption and increased operating costs.
• Moreover, extreme weather and water shortages can also impact the business.
• Lack of product regulations and product safety can lead to safety risks.

Financial Highlights (for the 26-week period to 24 October 2020 (H1 FY21), as on 19 January 2021)

(Source: Company Website)

• The revenue decreased by 23.4% YoY in H1 FY21, with 23% of owned store trading days lost. The decline was driven by the continued impact of social distancing on footfall and lockdown restrictions.
• However, the e-commerce division increased by 49.8% YoY.
• The gross margin decreased by 460bps, and underlying loss before tax increased to £10.6 million (against the same period last year), due to increased online promotional activity and trading disruption.
• As per the continuing uncertainty and financial performance, the Board has not proposed an interim dividend.
• The Company saw strong liquidity, with closing net cash position of £34.1 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

For the 11 weeks to 9 January 2021, the Group revenue declined by 27.2% YoY, with a decrease in Stores revenue of 52.1% YoY and Wholesale revenue of 23% YoY. However, the e-commerce sales increased by 13.2% YoY in the 11 weeks to 9 January 2021.  The Company also stated that 173 stores are temporarily closed. While the liquidity remains strong with net cash of £54.8 million at 9 January 2021. At present, it is hard for the Company to provide any prediction based on unpredictable current circumstances. Moreover, the retail business was dim in all the markets, but their online business has given an outstanding performance. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of GBX 60.10 and GBX 426.80, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Superdry Plc at the closing price of GBX 221.80 (as on 22 January 2021).

*All forecasted figures and Peer/Industry information have been taken from Refinitiv, Thomson Reuters.

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