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Entain was the most significant detractor over the month declining -21% without any material company-specific news flow. The shares have now declined some -30% from the Dec-2024 high.

We originally came across the company via our investment in IAC (3.2% of AGSS NAV), which owns a stake in MGM; in turn MGM and Entain are JV partners in BetMGM and in 2021 MGM unsuccessfully tried to acquire Entain.

The company trades at a 52% discount to our estimated NAV, which is comprised of Online Operations (76% of portfolio), Retail Operations (11%) and BetMGM (13%).

The treaty (or tightrope?) that active fund managers traverse with the market is one of sufficient efficiency. Markets must be inefficient enough to misprice stocks; but efficient enough in the long run for fair values to be recognised. We are always mindful that the market is often right, not every discount is an inefficiency to be exploited, and that many investors are too loose-lipped in decrying the market as being wrong.

With this caveat in place, we find the recent share price performance of Entain to be in stark contrast to the fundamentals

As we see it, there are two reasons behind the weakness.

Firstly, in December 2024, it was announced that the Australian anti-money laundering regulator (AUSTRAC) had commenced civil proceedings against Entain’s Australian subsidiary. The investigation began in 2022 and relates to 17 accounts, out of over 1 million, and alleges that Entain did not have the right systems in place. As our industry is fond of saying, past performance is not indicative of future results, however we note AUSTRAC’s largest ever fine equates to c.£225m, equivalent to c.4% of Entain’s pre-announcement market cap. We don’t claim any great insight beyond this, but that is the ballpark we are in.

Secondly, in February it was announced that Entain’s CEO, Gavin Isaacs, would step down with immediate effect. Here we have more sympathy with the market’s despondence. A CEO departing after only five months in the job announced via a vague press release is hardly confidence inspiring. With that said, with a competent and experienced (temporary) replacement waiting in the wings in the form of Stella David (who had previously been interim CEO before Mr. Isaacs appointment) there is no great disruption. Moreover, our investment case is (largely) centred on the potential to unlock value from the BetMGM JV, and we believe a strong board (and capital allocation committee) is of central importance from a governance perspective.

Turning to the fundamentals, during February, both Entain and BetMGM reported FY results. For the first time in our ownership period, both engines, the Online Operations & BetMGM, are performing well.

Starting with Entain’s wholly-owned operations, the recovery has continued. Q4 marked the first time in almost three years that the online business saw double-digit organic sales growth, slightly aided by favourable results in the UK. Importantly, playing retention is back above the ~85% level which sits at the heart of the growth algorithm, as a levelling of the regulatory environment through the Voluntary Code took effect. It is our expectation that from here, growth should at least match that of the underlying markets (c.5% on a weighted average basis) with potential upside to this as share shifts back away from third-tier operators. As we look further ahead, we see a long runway for continued growth, as well as margin expansion from the online operations.

Moving to BetMGM, it was around this time last year, that management outlined 2024 was to be a “year of investment”, after a difficult 2023. It was pleasing to see that these investments were not in vain, as BetMGM exited 2024 as a fundamentally stronger business. Almost every KPI saw significant improvement, gaining momentum over the course of the year, which has continued into 2025.

In 2025, management expects EBITDA to be positive. This is materially ahead of consensus which was expecting another negative year. We believe that this earlier than anticipated inflection point adds credence to management’s medium-term aspiration of $500m in annual EBITDA.

Taking a step back, the acquisition of Angstrom has significantly improved the business’s product offering, and the Nevada single wallet acts as a key differentiator.  As such, we believe BetMGM holds a credible and durable #3 position in the largest and fastest-growing online gaming market in the world.

However, in the current structure, the value is being entirely discounted, with BetMGM trading at a negative implied valuation. Alternatively, stripping out our (conservative) carrying value for BetMGM, the stub of Entain trades at 5x NTM EBITDA, versus peers closer to 10x and historic M&A transactions north of this level.

We believe this to be an unduly low valuation, for a company operating in a structurally growing industry with significant barriers to entry.

Entain was the most significant detractor over the month declining -21% without any material company-specific news flow. The shares have now declined some -30% from the Dec-2024 high.

The treaty (or tightrope?) that active fund managers traverse with the market is one of sufficient efficiency. Markets must be inefficient enough to misprice stocks; but efficient enough in the long run for fair values to be recognised. We are always mindful that the market is often right, not every discount is an inefficiency to be exploited, and that many investors are too loose-lipped in decrying the market as being wrong.

With this caveat in place, we find the recent share price performance of Entain to be in stark contrast to the fundamentals and have added to the position during the first quarter of the year.

As we see it, there are two reasons behind the weakness.

Firstly, in December 2024, it was announced that the Australian anti-money laundering regulator (AUSTRAC) had commenced civil proceedings against Entain’s Australian subsidiary. The investigation began in 2022 and relates to 17 accounts, out of over 1 million, and alleges that Entain did not have the right systems in place. As our industry is fond of saying, past performance is not indicative of future results, however we note AUSTRAC’s largest ever fine equates to c.£225m, equivalent to c.4% of Entain’s pre- announcement market cap. We don’t claim any great insight beyond

this, but that is the ballpark we are in.

Secondly, in February it was announced that Entain’s CEO, Gavin Isaacs, would step down with immediate effect. Here we have more sympathy with the market’s despondence. A CEO departing after only five months in the job announced via a vague press release is hardly confidence inspiring. With that said, with a competent and experienced (temporary) replacement waiting in the wings in the form of Stella David (who had previously been interim CEO before Mr. Isaacs appointment) there is no great disruption. Moreover, our investment case is (largely) centred on the potential to unlock value from the BetMGM JV, and we believe a strong board (and capital allocation committee) is of central importance from a governance perspective.

Turning to the fundamentals, during February, both Entain and BetMGM reported FY results. For the first time in our ownership period (which began in December 2023), both engines are performing well.

Starting with Entain’s wholly-owned operations, the recovery (which we described in the August newsletter) has continued. Q4 marked the first time in almost three years that the online business saw double-digit organic sales growth, slightly aided by favourable results in the UK. Importantly, playing retention is back above the ~85% level which sits at the heart of the growth algorithm, as a levelling of the regulatory environment through the Voluntary Code took effect. It is our expectation that from here, growth should at least match that of the underlying markets (c.5% on a weighted average basis) with potential upside to this as share shifts back away from third-tier operators. As we look further ahead, we see a long runway for continued growth, as well as margin expansion from the online operations.

Moving to BetMGM, it was around this time last year, that management outlined 2024 was to be a “year of investment”, after a difficult 2023. It was pleasing to see that these investments were not in vain, as BetMGM exited 2024 as a fundamentally stronger business. Almost every KPI saw significant improvement, gaining momentum over the course of the year, which has continued into 2025.

In 2025, management expects EBITDA to be positive. This is materially ahead of consensus which was expecting another negative year. We believe that this earlier than anticipated inflection point adds credence to management’s medium-term aspiration of $500m in annual EBITDA.

Taking a step back, the acquisition of Angstrom has significantly improved the business’s product offering, and the Nevada single wallet acts as a key differentiator.  As such, we believe BetMGM holds a credible and durable #3 position in the largest and fastest-growing online gaming market in the world.

However, in the current structure, the value is being entirely discounted, with BetMGM trading at a negative implied valuation to our estimated valuation. Alternatively, stripping

out our (conservative) carrying value for BetMGM, implies valuation. Alternatively, stripping out our (conservative) carrying value for BetMGM, the stub of Entain trades at 5x NTM EBITDA, versus peers closer to 10x and historic M&A transactions north of this level.

We believe this to be an unduly low valuation, for a company operating in a structurally growing industry with significant barriers to entry.

Entain was the most significant positive contributor over the month, with the shares having risen +25% since the company reported interim results on the 8th of August.

Results were encouraging, with a top-line “beat” and an increase in full year guidance. Most importantly, the Online Operations positively surprised with +1.0% constant currency organic growth, which compared favourably to the -2.6% consensus had pencilled in. Results were flattered by one off sporting events in terms of the Euros and Copa America, but even accounting for these, result would have been ahead of consensus. It appears that the business has started to turn the corner, with improving KPI’s across many geographies, and most notably Brazil. In the UK & Ireland performance remains subdued, but management are encouraged by +12% growth in online activities and a stabilisation of spend per head, as the business benefits from a redesign of the Ladbrokes front-end UI and steps taken to simplify player journeys. With easing comps and a levelling of the regulatory playing field, a return to growth in the second half of the year looks in sight.

At the results presentation management talked about the inherent lag between “good inputs” and “good outputs”. Markets generally find this lag difficult to price and in the case of companies like Entain – where investor confidence and trust has been broken – are even less willing to look forward. The onus is on management to deliver the outputs. As and when this occurs the revaluation, can be quite sharp – to which Entain’s recent share price chart attests. We are, however, not out of the woods just yet. Whilst there are encouraging signs from Entain’s wholly-owned operations performance of the 50:50 BetMGM JV remains a work in progress. Growth rates have disappointed, market share has been lost, and profitability targets have been pushed back.

Notwithstanding this, we remain sanguine and believe patience is needed, as similarly to Entain’s other operations, there are lags between inputs and outputs. Most pertinently, we believe the 2023 acquisition of Angstrom Sports significantly improves BetMGM’s in-play bet offering and will make the company more competitive. Moreover, the launch of a Nevada single wallet feature, creates further differentiation from DraftKings and FanDuel, which should help support a recovery in market share. We believe the upcoming NFL season will serve as a test case for this, and are encouraged by the enthusiasm of Entain, MGM and IAC management.

Returning to Entain, the shares remain lowly valued, trading at an -38% discount to our estimated NAV. This can be cut a number of ways: deducting our estimated value of the 50% stake in BetMGM implies the wholly owned stub is trading at an implied 6.3x NTM EBITDA vs. average peer multiples of 9.6x and recent M&A transactions above 10x; alternatively, this can be interpreted as assigning a negative value for BetMGM. We do not consider either such implications to be remotely fair!

With a new highly incentivised CEO in-place, a new Chair who has shown herself to be a highly capable operator as interim CEO, and improving fundamental momentum, we believe the ground is set for strong performance. Since initiation in Dec2023, Entain has been a bruising investment for us – and one where we have had to average down time and again. However, as we look ahead, we are optimistic about prospective returns.

Entain was the most significant detractor, with the shares declining -14% in May. During the month the company’s capital allocation committee provided an update to the market. For investors expecting major asset sales or changes this was something of a damp squib, with Crystal Bet in Georgia the only asset to be sold. We believe patience is needed as steps taken over the last year start to pay off, and that improved fundamentals – both for Entain’s wholly owned assets and at BetMGM – will open up numerous paths to unlock and grow value. Other investors are seemingly losing patience, and we have been modestly adding to the position. We note that several board members have been buying shares in the market and like our alignment of interest with several thoughtful and engaged shareholders.

In recent months we have also built a position in Entain, the London-listed sports betting and gambling company. The company trades at a 37% discount to our estimated NAV, which is comprised of Online Operations (70% of portfolio), Retail Operations (10%) and BetMGM (20%). We originally came across the company via our investment in IAC (3.3% of AGT NAV), which owns a stake in MGM; in turn MGM and Entain are JV partners in BetMGM and in 2021 MGM unsuccessfully tried to acquire Entain. Entain has since been subject to a further takeover offer (from DraftKings in 2022) with the shares peaking out just shy of £24. Since then, we have watched from afar as regulatory headwinds, operational missteps, personnel changes and capital (mis)allocation sent the stock plummeting back down to below £9 today.

Established and listed (then as GVC Holdings) in 2004 to acquire a German online casino operator, the business has pursued an aggressive acquisitive consolidation strategy that has seen the company amass an attractive collection of leading brands, including BWIN (2016) in Europe, Ladbrokes Coral (2018) in the UK and the BetMGM JV, which launched in 2018 and gave Entain a position in the rapidly evolving US online sports betting market. From 2007, under the leadership of Kenny Alexander this was largely a successful strategy – with a knack for deal making, and importantly an ability to successfully integrate acquisitions onto Entain’s technology platform. The departure of Alexander in 2020 started a volatile period of leadership at Entain. Two CEO’s have come and gone, with the company now looking for their fourth CEO in as many years. There has been attrition in the wider executive team, with the loss of their long-standing and well-regarded Chief Technology Officer in 2020.

According to one executive quoted in a trade publication this has placed the company in a state of “organisational chaos… We don’t have anybody who knows how to operate – forget about gambling – just how to run an operation”. All this has occurred at a time when the business faces significant challenges. Most notably regulatory changes in the UK have posed a significant headwind to growth and Entain has ceded market share to tier 2 and 3 operators. The worst of this is likely behind us as the player base has shifted toward a more recreational user, and in the long-run the increased regulatory burden acts as a barrier to entry and should benefit scaled operators such as Entain. In the US – where Entain are 50:50 JV partners with MGM – performance has underwhelmed and the business has lost market share. Recent product improvements in parlay betting and the launch of a unified (cross-state border) wallet are steps in the right direction but, as management concede 2024, will likely be a “year of investment” aimed at recapturing share.

These issues seem more than reflected in Entain’s dwindling stock price. We believe Entain’s stake in BetMGM is likely worth ~£2.5bn. Excluding this implies an enterprise value of £5.7bn for Entain’s core assets, or approximately 5.6x 2024e EBITDA. This is a significant discount to its own history (7.5x), listed peers, (10.6x) and recent double digit multiple comparable M&A transactions (e.g. Kindred). We believe organic growth, earnings, sentiment, and valuation are at the lows. With a swarm of activists on the shareholder register – and indeed now on the Board – we do not believe the current valuation will persist indefinitely with numerous potential paths to unlock value, not least from BetMGM, which is a highly strategic asset.