Although they shouldn’t be treated as gospel, brokers’ 12-month share price targets can be a useful guide when assessing which FTSE 100 stocks offer the best value. And based on the forecasts of the 18 analysts covering Entain (LSE:ENT), the global sports betting and gaming company’s shares are currently (19 September) 97% undervalued.
If they’re right, the stock’s the cheapest on the index. Is it? Let’s see.
Why so cheap?
In her 2025 Budget, Rachel Reeves announced a big increase in gambling taxes. Since then, the group’s share price has tanked 37%. The owner of Coral and Ladbrokes, and over 30 other brands worldwide, reckons the changes will cost it £200m a year.
I will also reform gambling taxes in response to the rise in online gambling. Remote gaming is associated with the highest levels of harm and so I am increasing Remote Gaming Duty from 21% to 40%, with duty on online betting increasing from 15% to 25%. I am making no change to the taxes on in-person gambling or on horse-racing.
Rachel Reeves, Chancellor, 2025 Budget
Unsurprisingly, investors are cautious. The group’s price-to-earnings (P/E) ratio has been in freefall.
Some might see this as an indicator of a stock market bargain. However, I think it would be unwise to consider investing at the moment. That’s because there are rumours that further tax increases could form part of this year’s Autumn Budget (28 October).
What next?
In August, PM Andy Burnham wrote on X: “Vape shops. Betting shops. Dodgy businesses.”
If I was a shareholder in Entain, I’d be nervous about what’s potentially coming down the racecourse.
Having said that, the group beat expectations when reporting its half-year numbers. For the six months to 30 June, it disclosed EBITDA (earnings before interest, tax, depreciation, and amortisation) of £479m. This was £24m better than forecast.
Large reductions in staff numbers and the football World Cup helped offset some of the impact of the higher levies. Further job cuts were announced on 16 September.
With fears that more people are becoming problem gamblers — the Gambling Commission’s latest annual survey found 2.7% of adults scored eight or more on its severity index – the industry’s now considered a pariah by some ethical investors. But leaving this to one side, analysts remain optimistic.
The better-than-expected half-year earnings, low valuation multiple, further anticipated costs savings, and ongoing efforts to reduce its debt are seen as positives. Also, the group isn’t entirely dependent on the UK. BetMGM, its US joint venture with MGM Resorts International, has now reached “sustainable profitability“.
