ii view: Betfair owner Flutter confident on US profits

Shares in this FTSE 100 gaming giant are down by more than a tenth year-to-date. Buy, sell, or hold?

First-half results to 30 June

• Revenue up 9% to £3.4 billion
• Pre-tax loss of £51.4 million, down from a profit of £77 million
• No interim dividend payment
• Net debt up 12% to £3 billion 

Guidance:

• Reiterated expectation for US business to make an adjusted profit (EBITDA) during FY 2023

Chief executive Peter Jackson said:

“We are particularly pleased with momentum in the US where we extended our leadership in online sports betting with FanDuel claiming a 51% share of the market and number one position in 13 of 15 states, helping contribute to positive earnings in Q2. We remain firmly on the path to profitability in 2023, driven by our compelling customer economics and disciplined investment.

“The second half of the year has started well and we look forward to the start of the football seasons in both the US and Europe. Being part of the Flutter Group provides unique strategic advantages to our portfolio of brands, giving access to expertise, technology and resources to drive performance and capitalise on further growth opportunities we see ahead."

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ii round-up:

Flutter Entertainment (LSE:FLTR) is a UK and overseas sports-betting and gaming company. 

It has operations in more than 20 regulated markets globally, including the US, the UK and Australia. 

Group brands include Paddy Power, Betfair, SkyBet, Tombola, FanDuel and PokerStars. 

For a round-up of these latest results, published on 12 August, please click here.

ii view:

Formed from the merger of Paddy Power, Betfair and The Stars Group between 2016 and 2020, Flutter is today a global sports-betting and gaming company. During this latest period, sports betting generated just over three-fifths of overall revenues and gaming products the balance. Geographically, the US generated its biggest slug of revenues at just under a third and up from around a fifth for the first half last year. The UK came next at just under 30%, followed by Australia at just under a fifth. 

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Its current strategic priorities include growing its positions in core markets such as Australia, investing in its US business and potentially buying businesses with podium positions in attractive markets. In early 2021, it purchased Junglee in India, where the online gaming market is expected to reach £4.2 billion by 2026 from £1.4 billion in 2021. 

For investors, a cost-of-living crisis and rising interest rates, potentially crimping spending by its customers, is not to be overlooked. Safer gaming regulations have been introduced in countries such as Germany, while the publishing of the UK government’s Gambling Act Review White Paper continues to be awaited. Net debt rose due to acquisitions. Flutter remains overall loss making, and it remains in dispute with Fox Corp Class A (NASDAQ:FOXA) regarding an 18.6% option in FanDuel.  

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On the upside, diversity in terms of product, brands and geographical location is notable. Its US business also made an adjusted profit during the second quarter and continues to be forecast for the full year. A push across the company towards safer gambling tools has also been seen. And management remains confident in the group’s ability to generate cash, enabling a reduction of net debt over time. 

On balance, and while some caution continues to looks sensible, an estimated analyst consensus fair price of over £130 per share suggests scope for longer-term upside. 

Positives: 

• Diversity of both business type and geographical location
• Growing in the USA

Negatives:

• Potentially increased government regulation
• No dividend payment

The average rating of stock market analysts:

Strong buy