Investing.com -- UBS Global Research has upgraded Entain (LON:ENT) PLC to a "buy" rating from "neutral," citing sustained operational improvements and a valuation that remains well below sector peers, in a note dated Tuesday.
Shares of the sports betting and gambling company were up 4.4% at 05:31 ET (09:31 GMT).
The brokerage believes the group is entering a turnaround phase, with 2025 and 2026 expected to mark a period of material recovery.
Despite a broader market rally, Entain shares have declined 8% over the past year. UBS notes that the company has made steady progress in its online business and shown early signs of sustainable profitability in its U.S. joint venture, BetMGM. However, that progress has not been reflected in its share price.
UBS points to the first quarter of 2025 as evidence of BetMGM’s ability to achieve profitability while maintaining market position.
This performance supports the investment case for long-term profitability in the asset. The brokerage expects BetMGM to meet or exceed its 2025 financial targets, providing investors with greater confidence in the business’s valuation contribution.
In its core online segment, UBS observes that Entain has returned to organic growth. The improvement is supported by stronger customer retention metrics.
UBS expects online revenue to grow by 6% in 2025, outpacing guidance for mid-single-digit growth.
Over the 2025 to 2029 period, online net gaming revenue is projected to grow at a compound annual growth rate of 7%, supported by operational leverage and cost savings, which could drive EBITDA growth of 12%.
Free cash flow generation is also forecast to shift significantly. UBS estimates that Entain will move from a negative FCF of approximately £90 million in 2025 to around £640 million by 2028, reflecting a £700 million swing. The increase is expected to come from organic EBITDA growth, the end of DPA payments, and dividend contributions from BetMGM.
UBS values the stock using a discounted cash flow model and has raised its price target to 920p, up 12% from its previous estimate. The revised valuation reflects higher earnings forecasts and an increase in the terminal growth rate to 2.25% from 2.0%.
Entain currently trades at around a 20% discount to peers, according to UBS, while offering the highest level of earnings growth relative to its valuation.
“We see catalysts in H1 trading via guidance upgrades for Entain online and BetMGM,” the brokerage said.