Interactive Investor

Is this FTSE 100 bookie still worth a Flutter?

Its shares have hit a record high on the back of these annual results and the company is doing well in America. ii's head of markets rounds up the latest numbers from the Paddy Power owner.

26th March 2024 08:32

Richard Hunter from interactive investor

    The US remains the engine of growth for Flutter Entertainment (LSE:FLTR) and is the area with which the group is increasingly being identified.

    Although the UK is presently the site of Flutter’s primary listing, the shares began trading in New York in January, with the plan to switch the primary listing there later this year subject to shareholder approval. The move has already ignited investor interest in the US, giving the group access to deeper pools of liquidity.

    In addition, the group’s brands are increasingly recognisable Stateside, exposing Flutter to a much broader audience (the addressable market was previously estimated to grow to more than $40 billion by 2030) which provides scope for more players, increased revenues and ultimately profitability.

    The US accounts for 38% of group revenues and is on something of a tear. Revenues rose by 41% in 2023, with the region moving into positive adjusted earnings for the first time. FanDuel retains its number one sportsbook position, with a net gaming revenue market share of 53.4% in the final quarter, while the FanDuel Casino business saw a share of 26% in that period, also remaining the primary player.

    The group’s move into iGaming provides an additional revenue stream, where a strong pipeline looks likely to consolidate the gains seen so far.

    In the trading period since the end of 2023 up to 17 March, the momentum has been maintained, with revenues increasing by 55.6%, largely propelled by record engagement in the Super Bowl event. The outlook is similarly upbeat, with the group estimating annual growth of 36% in revenues, and with adjusted earnings to climb from $635 million to $785 million for the upcoming year. 

    The group’s geographical diversification is also playing its part, with the exception of Australia which has seen a decrease in revenue. The previous boost to the racing environment by the pandemic has now worn off, with an additionally soft market adding to the decline. Even so, at 12% of group revenues the drop is not overly hurtful to the overall picture and in any event has been more than offset by contributions from elsewhere.

    The UK business, which includes the likes of Paddy Power and Betfair and which accounts for 26% of group revenues, saw a strong trading period after a period of strong marketing investment and customer and engagement.

    The remainder of the International business, including the acquisition of Italy’s Sisal brand which contributed $1.2 billion of revenues, saw revenue growth of 6.3% and remains an important strand of overall revenues, accounting for around a quarter of group sales.

    The rise in earnings has been powered by an increase of 20.3% to average monthly players, which now stands at 12.3 million. The group is working hard to improve the timescale over which new customers become profitable after the cost of acquisition (currently around 18 months) and will also focus on reducing its net debt position, which rose to $5.8 billion from $5.7 billion and will probably put thoughts of any dividend payments to one side for the time being. 

    The profit numbers were entirely skewed by a number of impairments, leading to a net loss of $1.2 billion for the year compared to $370 million in the corresponding period. These non-cash charges totalled $1.68 billion and included an impairment write down of $725 million to its PokerStars trademark and a charge to intangible assets of $791 million. Excluding these factors, adjusted group earnings rose by 45% to $1.87 billion against an expected $1.51 billion, underpinned by a 24.6% growth in revenues to $11.8 billion versus an estimated $9.5 billion. 

    Aside from the poor performance of the Australian business, ongoing regulation remains a thorn in the side for the sector as a whole, with gambling reforms and restrictions likely to continue over any number of the jurisdictions in which Flutter operates.

    Nonetheless, Flutter is firing on its US growth cylinders and is also lining up its other existing regions to produce significantly profitable returns. It is also on the lookout for further bolt-on, “local hero” opportunities in high growth markets, while the new exposure from the additional US listing provides additional investor interest.

    In stark contrast to the share price performance of its peer Entain (LSE:ENT), Flutter’s price has risen by 24% over the last year, as compared to a gain of 6.9% for the wider FTSE100 and appetite for the stock remains undiminished, with the market consensus of the shares as a 'strong buy' still resolutely in place.

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