European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p><a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> confirmed that it had received a proposal from <a href="https://www.smartkarma.com/entities/draftkings-inc" target="_blank" data-smartkarma-citation="entities:29248:1" rel="noopener">DraftKings Inc (DKNG US)</a>. On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to <strong>2,800p/share</strong> (630p in cash and and the balance payable in new DraftKings Class A common shares).</p>
<p>The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, <strong>19.2x EV/NTM EBITDA</strong> and 39.2x Fwd P/E (source: Capital IQ consensus).</p>
<p><strong>PUSU deadline</strong> is <strong>19 October</strong>.</p>
<p>There is some interloper risk. In case DraftKings presents a firm offer, <strong>MGM could potentially bid again for Entain</strong>. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.</p>
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<p>Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.</p>
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<p><strong>BetMGM</strong> (Entain’s joint venture in the US with MGM Resorts) <strong>continues to perform strongly</strong>. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.</p>
<p><strong>Valuation of Entain</strong>. By using the median of comparables <strong>11.9x EV/Fwd EBITDA</strong>, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to <span title="Share Price as of Dec-31-2020 FY: 2020 Period End Date: Jun-30-2020 Period Type: LTM Value: £ 11.34, Currency: GBP">£</span>3,933 mn, or 672p per share).</p>
<p>Adding the base case plus BetMGM, my longer term <strong>TP</strong> is <strong>2,300p</strong>. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be <strong>LONG</strong>.</p>

Entain (ENT LN) confirmed that it had received a proposal from DraftKings Inc (DKNG US). On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).
The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).
PUSU deadline is 19 October.
There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.

Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.

BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.
Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).
Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.

DraftKings/Entain: Cash and Shares Approach

Global Gaming and Casinos Industry Specialist, Casino Business Review LLC

Howard J Klein

Global Gaming and Casinos Industry Specialist

Equity Bottom-Up

MGM Resorts International / Equity Bottom-Up

<p>It remains a strong contention for us that today's investors must exercise particular caution in acting on the flow of news from given stocks. It applies to most sectors today. But overall, the overkill of the media when it comes to perceived negative news about stocks in the casino sector, commands our cautionary guidance. The reason is clear. It has been clear to me during my over 30 years inside the industry as a c-level executive dealing with the excesses of media coverage, both positive and negative triggered by events in our industry. Investors are well advised to understand that the casino industry has a long history deeply rooted in human behavior. Over centuries it has survived every conceivable challenge, legal, political, economic imaginable. Yet despite these challenge, its mass appeal to people seeking a diversion from the everyday, willing to take risks they enjoy usually overcomes fleeting challenges. Such is the case now.</p>

It remains a strong contention for us that today's investors must exercise particular caution in acting on the flow of news from given stocks. It applies to most sectors today. But overall, the overkill of the media when it comes to perceived negative news about stocks in the casino sector, commands our cautionary guidance. The reason is clear. It has been clear to me during my over 30 years inside the industry as a c-level executive dealing with the excesses of media coverage, both positive and negative triggered by events in our industry. Investors are well advised to understand that the casino industry has a long history deeply rooted in human behavior. Over centuries it has survived every conceivable challenge, legal, political, economic imaginable. Yet despite these challenge, its mass appeal to people seeking a diversion from the everyday, willing to take risks they enjoy usually overcomes fleeting challenges. Such is the case now.

MGM Resorts International: Strategically Sound for an Upside in the US and Macau---Buy on the Dip

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Galaxy Entertainment Group / Equity Bottom-Up

<p>For our next Webinar, we are thrilled to welcome Insight Provider <a href="https://www.smartkarma.com/profiles/howard-j-klein" target="_blank" data-smartkarma-citation="accounts:1005" rel="noopener">Howard J Klein</a>. Howard will go over his outlook on the casino and gaming sector in Asia for 2022 and present opportunities for investors in this space.</p>
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<h3>The webinar will be hosted on Wednesday, 6 October 2021, 11:00 SGT/HKT.</h3>
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<h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=86290932330" target="_blank" rel="noopener">Register for the Webinar here</a></h2>
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<p>Howard J Klein has 25+ years of experience as a C-level executive of the casino industry in operations, marketing, international development, and strategic planning. He is currently a consultant specialising in the casino space, an industry expert contributor, and publisher of a subscription letter called "The House Edge". He gained extensive experience in marketing and development in the Asian gaming market while a senior executive at Caesars, Ballys Grand, and Trump Taj Mahal, and he was part of senior executive teams that valued acquisitions and mergers with companies in the casino, hotel, entertainment, and restaurant space.</p>
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For our next Webinar, we are thrilled to welcome Insight Provider Howard J Klein. Howard will go over his outlook on the casino and gaming sector in Asia for 2022 and present opportunities for investors in this space.

The webinar will be hosted on Wednesday, 6 October 2021, 11:00 SGT/HKT.




Register for the Webinar here

Howard J Klein has 25+ years of experience as a C-level executive of the casino industry in operations, marketing, international development, and strategic planning. He is currently a consultant specialising in the casino space, an industry expert contributor, and publisher of a subscription letter called "The House Edge". He gained extensive experience in marketing and development in the Asian gaming market while a senior executive at Caesars, Ballys Grand, and Trump Taj Mahal, and he was part of senior executive teams that valued acquisitions and mergers with companies in the casino, hotel, entertainment, and restaurant space.



Smartkarma Webinar | Asian Casino Outlook 2022: Challenges and Opportunities

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<li>The US and Macau casino operator and its Japanese partner Orix Corporation may face tough odds to produce a viable ROI in a project that could reach over US$10b when done.</li>
<li>The Osaka casino resort will be the single most expensive IR ever built. Cost overruns historically are significant.</li>
<li>MGM shares could see a spike when officials announce winning bids by Spring or before. MGM is the only bidder left for Osaka.</li>
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The US and Macau casino operator and its Japanese partner Orix Corporation may face tough odds to produce a viable ROI in a project that could reach over US$10b when done.
The Osaka casino resort will be the single most expensive IR ever built. Cost overruns historically are significant.
MGM shares could see a spike when officials announce winning bids by Spring or before. MGM is the only bidder left for Osaka.


MGM's Osaka IR Aims at a US$9b Cost with Initial US$2.5b. It Might Be a Bridge Too Far

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Melco International Development / Event-Driven

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<p>This week in StubWorld ...</p>
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<p><a href="https://www.smartkarma.com/entities/melco-international-development-ltd" target="_blank" data-smartkarma-citation="entities:809:1" rel="noopener">Melco International Development (200 HK)</a>'s has bounced off its all-time low NAV discount and implied stub back in March, and is now back to +2 STD levels. </p>
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<p>Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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<p>As always, more below the fold.</p>
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This week in StubWorld ...




Melco International Development (200 HK)'s has bounced off its all-time low NAV discount and implied stub back in March, and is now back to +2 STD levels. 




Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


As always, more below the fold.


StubWorld: Lock In Profits As Melco's NAV Discount Narrows

United States

MGM Resorts International operates gaming, hospitality and entertainment resorts.  The Company owns properties in Nevada, Mississippi and Michigan in the United States; and owns interests in properties in Nevada and Illinois in the United States, and Macau. MGM Resorts also offers hospitality management services for casino and non-casino properties around the world.

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MGM Resorts International (MGM US)

DraftKings/Entain: Cash and Shares Approach

The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in...

Jesus Rodriguez Aguilar

MGM Resorts International: Strategically Sound for an Upside in the US and Macau---Buy on the Dip

Macau officials new scrutiny of casinos is not negative in its real world implications. Therefore the sharp decline in sector p sets the stage for...

Howard J Klein

Smartkarma Webinar | Asian Casino Outlook 2022: Challenges and Opportunities

On 6 October, 11am SGT, join us as Howard J Klein goes over his outlook on the casino and gaming sector in Asia for 2022 and presents opportunities...

Smartkarma Research

MGM's Osaka IR Aims at a US$9b Cost with Initial US$2.5b. It Might Be a Bridge Too Far

MGM/Orix partnership is likely to win Osaka IR license. Sunk cost may be much higher than anticipated, but news of approval next spring could spike...

Howard J Klein

StubWorld: Lock In Profits As Melco's NAV Discount Narrows

If you had set-up Melco - Long Melco and Short MLCO - I'd unwind that trade. I'd be inclined to reverse the stub here - Short Melco and Long MLCO.

David Blennerhassett

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