Interactive Investor

ii view: Flutter Entertainment details major Italian acquisition

23rd December 2021 11:33

Keith Bowman from interactive investor

Italy is the second-largest regulated gambling market in Europe after the UK. Buy, sell, or hold?

Acquisition of Italy’s Sisal

Chief executive Peter Jackson said:

"I am delighted to add Sisal, Italy's leading gaming brand, to the Group as we look to attain a gold medal position in the Italian market. For some time we have wanted to pursue this market opportunity via an omni-channel strategy and this acquisition will ideally position us to do so.”

ii round-up:

Betfair owner Flutter Entertainment (LSE:FLTR) today announced the €1.913 billion (£1.62 billion) acquisition of Italy’s Sisal gaming company from private equity firm CVC Capital Partners. 

The purchase is likely to complete during the second quarter of 2022 and is expected to be earnings enhancing during its first-year post-completion.

Flutter shares rose by more than 3% in early UK trading, leaving its shares up by more than 80% since pandemic induced market lows back in March 2020. Shares for Ladbrokes owner Entain (LSE:ENT) and fellow rival 888 Holdings (LSE:888) are each up by more than 250% in that time. 

The acquisition of Sisal by Flutter marks a further round of industry consolidation. Earlier this year, US company Caesars Entertainment completed a £2.9 billion takeover of William Hill. Then 888 bought the non-US operations of the William Hill business including its 1,400 UK high street bookies for £2.2 billion. Entain received an eventual aborted takeover approach from US gaming company DraftKings. 

Headquartered in Milan, Sisal is a betting, gaming and lottery operator employing around 2,500 people. It expects to generate adjusted earnings of around €248 million (£211 million) for the year to the end of December, with around 58% coming from its online product offering. 

Italy accounts for most of Sisal’s revenues, with around a tenth coming from its lottery operations in Turkey and Morocco. Italy is the second-largest regulated gambling market in Europe after the UK. Its total estimated gross gaming revenue in 2019 was some £16 billion. Online penetration rates remain well below the UK and Australia. 

The deal to buy Sisal is being financed by way of additional Flutter debt facilities agreed with Barclays (LSE:BARC)

ii view:

Formed from the merger of Paddy Power and Betfair in 2016, Flutter Entertainment is now a global sports-betting and gaming company. Its late 2019 acquisition of The Stars Group added further brands to its stable such as Sky Bet, PokerStars and FanDuel. In the year to December 2020, sports betting generated around three-fifths of revenues with the balance from gaming. Countries of operation include the UK and Ireland, Australia, and the USA. 

For investors, problem gambling is an issue which critics of the industry are keen to address. Potential for increased UK regulation needs to be remembered, too, while acquisitions do bring some risk given potential clashes of management style and estimates required regarding the correct purchase price.  

That said, this latest acquisition marks a further grab of global market share. Its access to the US population is expected to grow from a current 27% to over 40% given seven new State law changes in 2022, while consumer moves in high street betting to online made under the pandemic in Australia may well now stick.  In all, and with analysts estimating a price target of over £160 per share, the shares themselves could be worth a long-term flutter. 

Positives: 

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

Negatives:

  • Losses in the USA being generated
  • No dividend payment

The average rating of stock market analysts:

Strong buy

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