Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/tabcorp-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6837:1" rel="noopener">Tabcorp Ltd (TAH AU)</a> merged with <a href="https://www.smartkarma.com/entities/tatts-group-ltd" target="_blank" data-smartkarma-citation="entities:14615:1" rel="noopener">Tatts Group Ltd (TTS AU)</a> in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated.
Fast forward another three-plus years: after rejecting a A$3bn offer from <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (owner of Ladbrokes) to buy its wagering and media division, Tabcorp <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02358183-3A564328?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value.
These include a potential sale of the wagering &amp; media ops or a potential demerger - via the separation of the wagering segment or the lotteries business.
The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 
Chairman Steven Gregg said he remains open to a full bid for the wagering ops, but:
<blockquote>
there’s a big gap between where we are and where that would need to be. The ball is really in their court. Source: AFR
</blockquote>
Apollo Global Management was also reportedly kicking tyres, along with bookie Matthew Tripp  - potentially backed the Murdochs.
As always, more below the fold.

Tabcorp Ltd (TAH AU) merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated.
Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value.
These include a potential sale of the wagering &amp; media ops or a potential demerger - via the separation of the wagering segment or the lotteries business.
The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 
Chairman Steven Gregg said he remains open to a full bid for the wagering ops, but:

there’s a big gap between where we are and where that would need to be. The ball is really in their court. Source: AFR

Apollo Global Management was also reportedly kicking tyres, along with bookie Matthew Tripp  - potentially backed the Murdochs.
As always, more below the fold.

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

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

European Event-Driven Analyst

Jesus Rodriguez Aguilar

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.

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)

Tabcorp (TAH AU) - Conscious Uncoupling

The announcement of a strategic review just three months into Gregg's tenure as chairman, suggests a sale or demerger may have legs. I'd be picking...

David Blennerhassett

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

We are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Vermilion Research

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

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