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Following the UK Budget announcement on Wednesday (30 October), one FTSE 100 the company rose above the rest. The stock in question was available Have fun (LSE: ENT).
Its shares are down 27% since the start of the year. But the chancellor’s announcement about the tax hike caused the stock to jump nearly 9%.
Breathing
Rachel Reeves approached the new government’s first Budget with a target of £40bn in tax. With the promise not to target working people, businesses are in a critical situation.
Before the announcement, various agencies recommended a higher gambling tax. The Social Market Foundation has proposed raising taxes on online casinos from 21% to 42%.
Entain is one of the biggest betting companies in the world and would be in the firing line. But that announcement never came – gambling taxes were set to stay where they were.
As that became clear, the share price jumped from £7.25 to £7.70 per share. And the stock ended the day 9% higher than it started.
What does Enter mean
Entain’s website tells investors how the latest news is developing. It says tax is the company’s biggest cost and it paid £529m in UK taxes by 2023.
For context, that’s nearly double what the company generated in free cash flow last year and nearly five times what it distributed in dividends. The potential increase is huge.
Although the extra £529m would not make much of a difference to the £40bn the chancellor wanted, it should have been considered. So Entainers shareholders can be happy.
So it’s easy to see why investors are reacting positively to the latest news. But with the stock still well below where it was in January, is the news a buying opportunity?
Should I consider buying?
Entain has an attractive position in the online gaming industry. And the continued popularity of this market was reflected in the company’s Q3 trading update earlier this month.
Other than this, it’s not a stock I’m interested in. Although the company is likely to avoid a tax increase from the UK, there are many external factors to consider.
It expects a change in the regulatory environment in Brazil from 2025, which could be a challenge. And the same goes for the new deposit rules in the Netherlands.
I think this kind of thing is going to be a constant challenge for business and there isn’t much that can be done about it. That’s why it’s not on my list of stocks to buy.
Rolling the dice
Avoiding a tax increase that reportedly has broad public support is a big win for Entain. And it’s no surprise to see the stock price rise as a result.
The stock still looks cheap, at about five times EBITDA. But in this case, the nature of the business means I would be more than happy to invest elsewhere.
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