European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 1 March, <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> <a href="https://www.prnewswire.com/sv/pressmeddelanden/entain-increases-the-offer-price-to-sek-53-in-cash-per-share-in-enlabs-838522676.html" target="_blank" rel="noopener">increased the offer price to SEK 53</a> per share in <a href="https://www.smartkarma.com/entities/enlabs-ab" target="_blank" data-smartkarma-citation="entities:31120:1" rel="noopener">Enlabs AB (NLAB SS)</a>,
<ul>
<li>from the previous offer of SEK 40 per share, which represents a 32.5% premium vs. the initial offer.</li>
<li>This represents c. 4.1x EV/Fwd Revenue, 14.0x EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.</li>
<li>Irrevocable undertakings now represent 50.9%.</li>
<li>If Entain becomes the owner of more than 90% of the shares of Enlabs, Entain intends to initiate a compulsory acquisition procedure.</li>
</ul>
Acceptance period until 18 March. Provided that Entain announces that the conditions of the offer have been satisfied or waived by 23 March 2021, settlement is expected to commence on or around 30 March 2021. The transaction should be completed by the beginning of Q2.
Gross spread is 1.1%, c. 4.5% annually, assuming a maximum of three months to complete (it should be less), and the chances to complete are even higher now. Recommendation is LONG at the current trading levels (SEK 52.4).

On 1 March, Entain (ENT LN) increased the offer price to SEK 53 per share in Enlabs AB (NLAB SS),

from the previous offer of SEK 40 per share, which represents a 32.5% premium vs. the initial offer.
This represents c. 4.1x EV/Fwd Revenue, 14.0x EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.
Irrevocable undertakings now represent 50.9%.
If Entain becomes the owner of more than 90% of the shares of Enlabs, Entain intends to initiate a compulsory acquisition procedure.

Acceptance period until 18 March. Provided that Entain announces that the conditions of the offer have been satisfied or waived by 23 March 2021, settlement is expected to commence on or around 30 March 2021. The transaction should be completed by the beginning of Q2.
Gross spread is 1.1%, c. 4.5% annually, assuming a maximum of three months to complete (it should be less), and the chances to complete are even higher now. Recommendation is LONG at the current trading levels (SEK 52.4).

<a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (formerly GVC) made an offer to acquire <a href="https://www.smartkarma.com/entities/enlabs-ab" target="_blank" data-smartkarma-citation="entities:31120:1" rel="noopener">Enlabs AB (NLAB SS)</a> from a group of sellers for SEK 40 per share in cash on 7 January 2021.
<ul class="">
<li data-bind="visible: !isCollapsed(), html: content">It values Enlabs at around SEK 2,796.98 mn (c. £250 mn), for an implied EV of SEK 2,820.39 mn.</li>
<li data-bind="visible: !isCollapsed(), html: content">This represents c. 3.4x EV/Fwd Revenue, 14.3 EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.</li>
</ul>
Enlabs shareholders holding in aggregate around 42.2% of the total number of Enlabs shares have irrevocably undertaken to accept the offer.  Minimum acceptance condition of 90% plus one share (necessary to squeeze out and delist). Entain therefore needs c. 82.7% of acceptances from the remaining shareholders, which is quite high.
Entain Entain is buying market share and a platform for expansion in the fast growing Baltic region and into Ukraine and Belarus.
By using EV/EBITDA median comps, the implied equity value is SEK 41.59 per share, 3.9% above Entain's offer. On this basis, the offer looks cheap, but not outrageous.
With 42.2% irrevocable undertakings, and no likely interlopers, the offer is highly likely to succeed.
<ul>
<li data-bind="visible: !isCollapsed(), html: content">The shares closed at SEK 40.8, 0.5% below the previous close, but still 2% above the offer price.</li>
<li data-bind="visible: !isCollapsed(), html: content">I would wait for the share price to weaken below the offer price before setting up the spread.</li>
</ul>
Entain is also very upbeat about their own trading statement (21 January).
(This Insight is labelled bearish as I do not see a trading opportunity until the share price of Enlabs drops below the offer price, a sweetened offer is not very likely, in my view).

Entain (ENT LN) (formerly GVC) made an offer to acquire Enlabs AB (NLAB SS) from a group of sellers for SEK 40 per share in cash on 7 January 2021.

It values Enlabs at around SEK 2,796.98 mn (c. £250 mn), for an implied EV of SEK 2,820.39 mn.
This represents c. 3.4x EV/Fwd Revenue, 14.3 EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.

Enlabs shareholders holding in aggregate around 42.2% of the total number of Enlabs shares have irrevocably undertaken to accept the offer.  Minimum acceptance condition of 90% plus one share (necessary to squeeze out and delist). Entain therefore needs c. 82.7% of acceptances from the remaining shareholders, which is quite high.
Entain Entain is buying market share and a platform for expansion in the fast growing Baltic region and into Ukraine and Belarus.
By using EV/EBITDA median comps, the implied equity value is SEK 41.59 per share, 3.9% above Entain's offer. On this basis, the offer looks cheap, but not outrageous.
With 42.2% irrevocable undertakings, and no likely interlopers, the offer is highly likely to succeed.

The shares closed at SEK 40.8, 0.5% below the previous close, but still 2% above the offer price.
I would wait for the share price to weaken below the offer price before setting up the spread.

Entain is also very upbeat about their own trading statement (21 January).
(This Insight is labelled bearish as I do not see a trading opportunity until the share price of Enlabs drops below the offer price, a sweetened offer is not very likely, in my view).

On 4 January <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (formerly GVC Holdings) confirmed in a <a href="https://entaingroup.com/newsrelease/statement-in-response-to-press-speculation/" target="_blank" rel="noopener">statement</a> that it had received proposals from <a href="https://www.smartkarma.com/entities/mgm-resorts-international" target="_blank" data-smartkarma-citation="entities:16227:1" rel="noopener">MGM Resorts International (MGM US)</a> regarding a possible offer. The combination could create an operator with a large both online and physical presence through retail shops and casinos.
<ul>
<li>The last offer has been 0.6 MGM US x 1 ENT LN.</li>
<li>
Based on closing prices on 31 December 2020 (last trading day prior to the announcement), the proposal represents 1,383p per Entain share.
<ul>
<li>Valuing the equity of Entain at c. £8,092 mn, implied EV of c. £10,206.2 mn and a premium of 22% to Entain’s share price.</li>
<li>13x EV/Fwd EBITDA.</li>
</ul>
</li>
<li>
Entain's shareholders would own approximately 41.5% of the combined company.
</li>
</ul>
The shares of Entain closed on 4 January at 1,420p, 25.3% higher than the previous close.
The move comes just a few months after Entain’s UK rival William Hill agreed to be taken over by its Las Vegas-based partner Caesars Entertainment. Entain shares shot up 25% over 2020, and if that rally continues, MGM or any other prospective buyer would be forced to pay up for Entain.
The key is the valuation of BetMGM and its future prospects in a in a very competitive market populated by deep-pocketed players.
The proposed offer price represents c. 8.0-9.0x trailing EBITDA, vs. 10.0x for comps and c. £3.5 bn for the stake in BetMGM.
<ul>
<li>This offer, as the Board says, seems to undervalue the business.</li>
<li>I view MGM's move as an opening gambit, and believe there is room to sweeten the offer.</li>
</ul>
By using the median of comparables 14.6x EV/Fwd EBITDA, the implied valuation for Entain would be 1,537p.
<ul>
<li>This is 11% above MGM's offer.</li>
<li>Let us keep in mind that BetMGM does not currently contribute to the bottom line, for now, it is a wild card.</li>
</ul>
By using Entain's projections for the US ($20.3 bn by 2025, and expected market share 15-20%), I will use the mid point, 17.5% share for a total revenue of $3.55 bn by 2025. By applying a 2.8x EV/Fwd Revenue multiple, in a blue sky scenario, the valuation of the JV could reach $9.94 bn, of which $4.97 bn for Entain (equivalent to £3,658 mn, not too far away from MGM's implied valuation, or 625p per share).
Therefore my valuation for Entain would be between the base case of 1,537p and 2162p. Taking the mid point would give a longer-term TP of 1,850p.
Recommendation is LONG Entain, or set up the spread in the usual way, although the offer is likely to improve. I would not rule out a dawn raid by private equity.
By using the last closing price of MGM, the shares of Entain are trading 6.9% above the indicated terms.

On 4 January Entain (ENT LN) (formerly GVC Holdings) confirmed in a statement that it had received proposals from MGM Resorts International (MGM US) regarding a possible offer. The combination could create an operator with a large both online and physical presence through retail shops and casinos.

The last offer has been 0.6 MGM US x 1 ENT LN.

Based on closing prices on 31 December 2020 (last trading day prior to the announcement), the proposal represents 1,383p per Entain share.

Valuing the equity of Entain at c. £8,092 mn, implied EV of c. £10,206.2 mn and a premium of 22% to Entain’s share price.
13x EV/Fwd EBITDA.



Entain's shareholders would own approximately 41.5% of the combined company.


The shares of Entain closed on 4 January at 1,420p, 25.3% higher than the previous close.
The move comes just a few months after Entain’s UK rival William Hill agreed to be taken over by its Las Vegas-based partner Caesars Entertainment. Entain shares shot up 25% over 2020, and if that rally continues, MGM or any other prospective buyer would be forced to pay up for Entain.
The key is the valuation of BetMGM and its future prospects in a in a very competitive market populated by deep-pocketed players.
The proposed offer price represents c. 8.0-9.0x trailing EBITDA, vs. 10.0x for comps and c. £3.5 bn for the stake in BetMGM.

This offer, as the Board says, seems to undervalue the business.
I view MGM's move as an opening gambit, and believe there is room to sweeten the offer.

By using the median of comparables 14.6x EV/Fwd EBITDA, the implied valuation for Entain would be 1,537p.

This is 11% above MGM's offer.
Let us keep in mind that BetMGM does not currently contribute to the bottom line, for now, it is a wild card.

By using Entain's projections for the US ($20.3 bn by 2025, and expected market share 15-20%), I will use the mid point, 17.5% share for a total revenue of $3.55 bn by 2025. By applying a 2.8x EV/Fwd Revenue multiple, in a blue sky scenario, the valuation of the JV could reach $9.94 bn, of which $4.97 bn for Entain (equivalent to £3,658 mn, not too far away from MGM's implied valuation, or 625p per share).
Therefore my valuation for Entain would be between the base case of 1,537p and 2162p. Taking the mid point would give a longer-term TP of 1,850p.
Recommendation is LONG Entain, or set up the spread in the usual way, although the offer is likely to improve. I would not rule out a dawn raid by private equity.
By using the last closing price of MGM, the shares of Entain are trading 6.9% above the indicated terms.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

La Francaise des Jeux / Equity Capital Markets

La Française des Jeux (FDJ) is the French national lottery established in 1933 and it is the largest company in the French gaming sector and has a monopoly in draw and instant lotteries (both point of sales and online) as well as point of sale sports betting in France. Based on gross gaming revenues, FDJ is second only to Italy’s Lottomatica in Europe, and also the 4th largest player in the world.Our previous insight on <a href="https://www.smartkarma.com/insights/fdj-french-national-lottery-ipo-odds-of-winning-are-better-than-their-lotteries" target="_blank" rel="noopener">FDJ (French National Lottery) IPO: Odds of Winning Are Better than Their Lotteries</a> focused on FDJ’s strong business model, stable earnings growth and its monopolistic position in the market. This time we shift our attention to the valuation of FDJ and in this insight, we’ll be looking at return on equity, dividend yield and other relative valuation multiples for both FDJ and its peers.

La Française des Jeux (FDJ) is the French national lottery established in 1933 and it is the largest company in the French gaming sector and has a monopoly in draw and instant lotteries (both point of sales and online) as well as point of sale sports betting in France. Based on gross gaming revenues, FDJ is second only to Italy’s Lottomatica in Europe, and also the 4th largest player in the world.Our previous insight on FDJ (French National Lottery) IPO: Odds of Winning Are Better than Their Lotteries focused on FDJ’s strong business model, stable earnings growth and its monopolistic position in the market. This time we shift our attention to the valuation of FDJ and in this insight, we’ll be looking at return on equity, dividend yield and other relative valuation multiples for both FDJ and its peers.

FDJ (French National Lottery) IPO Valuation: 32% ROE & 5% Dividend Yield Merits a Higher Valuation

United Kingdom

Entain plc is a sports betting and gambling company operating in the online and retail sector. The Company owns brands such as Bwin, Coral, Ladbrokes, PartyPoker, and Sportingbet. Entain serves customers worldwide.

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Entain (ENT LN)

Enlabs - Entain: Raised Offer

Gross spread is 1.1%, c. 4.5% annually, assuming a maximum of three months to complete the deal. Chances to complete are even higher now....

Jesus Rodriguez Aguilar

Enlabs - Entain Beefing Up

Implied equity value is SEK41.59, 3.9% above the offer, which looks slightly cheap. 42.2% irrevocable undertakings means likely to succeed. Shares...

Jesus Rodriguez Aguilar

MGM's Prospective Offer for Entain

MGM's offer, an opening gambit, seems to undervalue ENT. Key is the valuation of BetMGM. My valuation for ENT ranges between 1,537p and 2162p. Mid...

Jesus Rodriguez Aguilar

Global Equity Strategy:

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This...

Vermilion Research

FDJ (French National Lottery) IPO Valuation: 32% ROE & 5% Dividend Yield Merits a Higher Valuation

La Française des Jeux (FDJ) is the French national lottery established in 1933 and it is the largest company in the French gaming sector and has a...

Oshadhi Kumarasiri

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