Excitement continues to build at Flutter Entertainment
2nd March 2023 08:31
by Richard Hunter from interactive investor
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A strong share price rally since last summer has run into profit taking after annual results from this FTSE 100 company, but our head of markets reports plenty of optimism about the year ahead.
Investor excitement continues to build around prospects for Paddy Power owner Flutter Entertainment (LSE:FLTR), with the US becoming an increasingly important engine of growth for the gambling firm.
The FanDuel sportsbook in the US is going from strength to strength, with revenues for 2022 at the top end of expectations and coming in at $3.2 billion, which represents yearly growth of 67%. The operation reported a market share of 50% in the states in which it operates for the final quarter of the year, while the iGaming business also rose to 21%. Record Super Bowl takings augmented a year in which heavy investment, new state openings and an improved offering began to gain traction.
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Further out, the prospects for a market which is seeing the benefit of a liberalising US sports betting market. Flutter estimates that the addressable market will reach over $40 billion by 2030, more than 4.5 times greater than today, and the group’s increasing presence and profile bode well for prospects.
In the meantime, the US division is expected to become earnings positive for the first time this financial year, with the current levels of strong growth providing a springboard. Indeed, such is the growing importance of the business, Flutter is currently weighing up whether to take on additional listing in the US which would provide higher profile and more access to capital markets.
The UK market has also seen progress, boosted by the football World Cup and product improvements. The full reopening of the retail estate and the success of Paddy Power on social media also underpinned growth, while Australia also continued to make a worthwhile contribution. The UK is one of the areas in which there is some caution, however, mainly driven by regulatory change. The industry has already seen a reduction to a £2 maximum stake for fixed-odds betting terminals, a ban on gambling using credit cards and the possibility of stricter affordability checks also being considered.
Furthermore, a recently delayed white paper by the UK government could lead to restrictions on sponsorship deals with Premiership clubs, although due to the delay it has been possible for some gaming companies to renew deals in the interim.
At a group level, the number of Average Monthly Players rose by 26% to 10.3 million. Regulatory changes and contributions to safer gambling initiatives came at a cost of £160 million, while net debt rose from £2.6 billion to £4.6 billion, largely due to the acquisitions of Italian company Sisal, tombola and the buyout of minority shareholders in Adjarabet. A charge of £608 million for intangibles arising from acquisitions was also taking, pushing the group to a pre-tax loss of £275 million, a slight improvement from the previous year’s number of £288 million.
At an adjusted level, however, excluding such exceptional items, profit came in at £336 million. Revenues for the year grew by 27% to £7.69 billion, compared to £6.04 billion the year previous, and marginally ahead of expectations of £7.55 billion.
The company added that early year trading has started well and in line with estimates, building on the strong momentum from the previous year. Further significant capital expenditure is also likely and will include product investment, particularly in the burgeoning US offering.
In early exchanges the shares have inevitably seen some profit taking after what has been a strong run, with the price having risen by 31% over the last six months. Over the last year, the performance has been even stronger, with a hike of 43% comparing to a gain of 6.5% for the wider FTSE100.
The initial share price dip following the numbers is unlikely to detract from the allure of prospects for the group, however, especially Stateside. As such, the market consensus of the shares as a 'buy' is unlikely to alter.
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