This FTSE 100 stock was the big winner from the UK Budget

22 days ago

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After the UK Budget was revealed on Wednesday, October 30, one company on the FTSE 100 stood out from the rest. The company that experienced this surge was Entain (LSE:ENT).

The company's stock has dropped 27% since the beginning of the year. However, when the chancellor announced tax hikes, the stock surged by nearly 9%.

Rachel Reeves entered the initial Budget of the new administration with the goal of raising £40 billion in taxes. She made a commitment not to burden working individuals, placing a significant focus on businesses instead.

Prior to the announcement, several research organizations proposed increasing taxes on gambling activities. The Social Market Foundation advocated for raising the tax rate on online casinos from 21% to 42%.

Entain is among the biggest betting firms globally and would have been a prime target for scrutiny. However, the expected announcement never materialized – tax rates on gambling will remain unchanged.

Once it became clear, the stock price surged from £7.25 to £7.70 per share. By the end of the day, the shares were up 9% compared to where they began.

Implications For Entain Explained

Entain's website highlights to investors how impactful the recent updates are. It points out that taxes represent the company's largest individual cost, and that in 2023, it contributed £529 million in taxes in the UK.

To provide some background, this amount is roughly double the free cash flow the company produced last year and nearly five times the dividends it paid out. Such a potential increase would have been significant.

Even though an additional £529 million wouldn’t significantly impact the £40 billion the chancellor was trying to raise, it likely crossed their minds. As a result, Entain shareholders may feel quite satisfied.

It's clear why investors have reacted favorably to the recent updates. However, considering that the stock price remains significantly lower than it was in January, could this be a chance to buy?

"Is Buying The Right Choice For Me?"

Entain is well-placed in the online gaming sector, and the lasting appeal of this industry was evident in the company's trading update for the third quarter released earlier this month.

Even so, I’m not keen on this stock. Although the company has managed to dodge a tax hike in the UK, there are numerous other external challenges to consider.

There's an expectation of a shifting regulatory landscape in Brazil starting in 2025, which may present some difficulties. The same situation applies to upcoming deposit regulations in the Netherlands.

I believe that this type of situation will consistently pose a challenge for the company, and there’s little it can do to change that. For this reason, I haven't included it in my stock purchase list.

Steering clear of a tax hike that was said to have widespread backing from the public is a significant achievement for Entain. It's also not surprising that their stock price is rising as a consequence.

The stock appears to be undervalued, trading at roughly five times its EBITDA. However, given the unique characteristics of the business, I would prefer to put my money into different opportunities.

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