Interactive Investor

Betfair owner defies pandemic to grow 2020 revenues

2nd March 2021 10:41

Richard Hunter from interactive investor

Flutter Entertainment gains from online betting and expansion in the US.

Despite the extraordinary restrictions it has faced over the past year, betting and entertainment firm Flutter (LSE:FLTR) is moving at lightning speed, according to its 2020 results.

For a business to have washed its face after completing two corporate deals, let alone during a pandemic which saw sporting events cancelled during the first lockdown, is a fine achievement.

Flutter’s biggest brands are the likes of Betfair, Paddy Power and Poker Stars.

Alongside the sporting events cancellations came the shuttering of its store estate for large parts of the year, which drove a shift to online gaming in which the likes of poker took up some of the absent earnings.

The return of sporting events, which overall account for 62% of revenue, saw growth of 40% in the second half after just 8% in the first half.

It is the US where prospects are shining most brightly. The merger and acquisition deals with the Stars Group and FanDuel accompany a rising number of US states which are reconsidering gaming laws.

Flutter’s FanDuel sportsbook is now live in 10 states, the recent Super Bowl added 350,000 new customers (largely contributing to the company having achieved 90% of customer acquisition already in 2021 compared to last year).

Plus, further out, the estimate is that the overall addressable market for its brands will be worth more than £14 billion in 2025. In the meantime, for its US online business, market shares of 40% for sport and 20% for gaming are an extremely strong base from which to seek even more opportunities.

Revenues overall rose by 110% for the year and adjusted earnings by a similar amount, with customer growth of 32% in the fourth quarter. The immediate outlook is also bright, with the momentum continuing, as evidenced by a 36% hike in group revenues for the first seven weeks of the new financial year.

Such activity has, of course, come at a cost. Net debt soared to £2.8 billion from a previous £270 million. The leverage ratio, however, is manageable at 2.3x, with a target of between 1 -2x, and the group will prudently only consider the payment of a dividend when that level has been achieved.

Nor is the industry in which Flutter operates one of light regulatory touch.

In the UK, the announcements last month of stricter online slot machine measures and ensuring the sustainable spending of customers follow previous measures such as the ban on the use of credit cards.

Regulation has become a necessary and unavoidable part of operating in the gambling space, and these announcements follow previous measures such as the ban on the use of credit cards last April. The gaming industry is a traditionally easy target for authorities needing to raise taxes and, on the other side of the epidemic, this could become a focus as governments look to repair their bruised financial positions following the major costs incurred.

Even so, Flutter is expanding at a rapid clip. Its potential has been reflected in a share price which has risen by 74% over the last year, as compared to a decline of 1% for the wider FTSE 100.

It is possible that this breathless expansion, along with some competition and regulatory concerns leave the shares up with events, with the market consensus coming in at a hold, albeit a strong one. However, should the pace and scale of growth persist, it is equally possible that a rerating of prospects could follow.

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