As Entain shares dip, how long until the activist hedge funds step in again?
Global sports betting and gaming group Entain PLC experienced a significant drop in its share price on Thursday, shedding 4.87 percent to close at ?7.90. This occurred despite an overall favourable trading session for the stock market, with the FTSE 100 Index rising 0.17 percent to 7,692.46.
The companys shares are now ?7.27 short of its 52-week high of ?15.17, which was reached on 10 May. This decline is part of a broader trend, with the Entain share price having fallen by a staggering 64.5 percent since September 2021.
Activist investors and governance
Entain has been under the scrutiny of its activist hedge fund investors, some of whom are on the companys board. These investors, including Corvex Management LP, Dendur Capital, Sachem Head Capital Management, and Eminence Capital, have expressed concerns over Entains share price performance and the ability of its leadership. They have been building positions in the company and have been expressing their concern about Entains poor performance in its core markets, where regulators have tightened regulation on the online betting industry.
These investors have also voiced grievances with managements costly deals. A number of insiders familiar with the activists thinking have said that Entain is suffering from a lot of self-inflicted wounds. Shareholders are also losing faith in the management’s decision making.
Given the current state of affairs, it is reasonable to wonder how long it will take for the activist hedge funds to make more demands and get involved even further with the governance of the company.
Entain’s governance structure adheres to the requirements of the UK Corporate Governance Code, and the board encourages a culture of strong governance across the business. However, the dissatisfaction of these influential investors could potentially lead to significant changes in the companys strategic direction.
The timing of when these investors might voice their opinions or make more demands is uncertain. However, given their significant stakes in the company and their past expressions of concern, it is a known fact that they are closely monitoring the companys performance to safeguard their investments.
Leadership uncertainty and so many challenges
The recent drop in Entains share price can be attributed to several factors. The companys 2023 full-year results revealed a post-tax loss of ?879 million, largely due to a ?585 million fine related to an HMRC investigation into its legacy Turkish business. This, coupled with a series of one-off charges, overshadowed the fact that net gaming revenue (NGR) rose 11 percent year-on-year to ?4.83 billion.
Regulatory changes in two of its largest markets, the UK and the Netherlands, are impacting Entains profits. In the UK, new stake caps on online slot games will be implemented, while in the Netherlands, tighter deposit limits have been proposed from the second quarter. These changes could reduce this years EBITDA by approximately ?40 million.
Furthermore, the company is still searching for a new permanent CEO following the departure of Jette Nygaard-Andersen in December. This leadership uncertainty may also be contributing to the downward pressure on the share price and it has been left to interim CEO Stella David to address the repercussions of past decisions, striving to stabilize the company’s position – attempting to pick up the pieces to lay the groundwork for future growth.
Despite these challenges, there are some positive aspects to consider. Entain owns established brands like Coral, Ladbrokes, and Europes bwin. The company also saw a healthy 23 percent increase in online active customers, supporting a rise in NGR. Moreover, the companys US joint venture, BetMGM, delivered a good performance through the year 2023, with NGR of $1.96 billion , up 36 percent year-on-year.
While Entains share price has suffered due to a combination of regulatory changes, leadership uncertainty, and financial penalties, the companys strong brand portfolio and growing customer base provide optimism. However, the path to recovery may be challenging and as such, Entains situation warrants close observation by stakeholders and the markets.
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