GMVHF - Entain falls 9% after capital raise to fund STS Holdings deal

2023-06-14 06:49:17 ET

Jefferies weighed in on Entain's ( OTCPK:GMVHF ) deal to acquire buy Poland-based sports betting operator STS Holdings for $946M. The acquisition of the top sports betting operator in Poland is aimed at expanding Entain's reach in Europe.

Analyst James Wheatcroft expects potential pushback from investors due to an upper-end valuation multiple, limited cost savings, a slightly complicated deal structure, as well as the equity placing to fund the acquisition. On the positive side, Entain's ( OTCPK:GMVHF ) expectation for first-year EPS accretion, the high STS growth rate, and a reduction in the leverage multiple may provide offsets to the concerns.

Part of the deal rationale for Entain ( OTCPK:GMVHF ) is noted to be that Poland's $1.6B gambling market forecast to grow at a 12% CAGR to 2025.

"The online casino market is currently not fully liberalised in Poland (regulated, but run by state monopoly). As a sports betting licence holder, STS should be well-placed should this market legalise in due course."

Jefferies has a Buy rating on Entain ( OTCPK:GMVHF ) and price target of $1,805 pence (36% upside).

Shares of Entain ( OTCPK:GMVHF ) fell 9.00% in morning trading in London in reaction to the company announcing the completion of a quickfire capital raise of around £600M to fund the deal. "Shares are now trading below the price paid by those involved in the capital raise, so any investor looking to get their piece of the pie back has a more attractive entry point," noted Hargreaves Lansdown analyst Matt Britzman.

More on Entain:

• Entain: Online Continues To Perform Strongly
• UK overhauls some gambling laws - watch these stocks
• Entain Q1 earnings call transcript
• Entain compared to sector peers

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