ii view: Flutter expects smaller US losses

A recent acquisition has seen its overseas empire expanding. US growth leads the way. 

Third-quarter trading update to 30 September 2019  

• Revenue up 10% to £533 million
• Sports revenue up 11% to £417 million
• Gaming revenue up 8% to £116 million
• US revenue up 67%

Guidance:

• Earnings before interest, tax, depreciation and amortization (EBITDA) guidance unchanged at £420 million to £440 million
• US EBITDA loss now expected to be £40-45 million versus previous expectation of £55 million

Chief executive Peter Jackson said:

"Q3 was an important quarter for the group with revenues up 10% and the announcement of our combination with The Stars Group. We believe that this deal will accelerate delivery of all of our core strategic objectives and we are very excited about the international growth prospects for the combined group."

ii round-up:

Paddy Power owner Flutter Entertainment (LSE:FLTR) reported third-quarter trading buoyed by its burgeoning US operations.

Flutter, which recently acquired Canadian online bookie and owner of Sky Bet and PokerStars brands Stars Group, outlined a 67% jump in US revenues. Growth was fuelled by the launch of online and retail services in five new states. 

Over 250,000 US online sportsbook customers have been acquired. Casino revenues jumped by 174%, with cross-selling opportunities pursued. The stellar performance underwrote an improvement in expected full-year US losses to between £40 to 45 million versus a previous £55 million.

Its Australian business under the Sportsbet brand delivered a 19% revenue hike, although, less favourably, its core UK brands suffered a 1% sales fall, as both Paddy Power and Betfair implemented enhanced responsible gambling measures. 

ii view:

Flutter has previously outlined a number of initiatives to generate growth including growing Betfair internationally and strongly targeting the US market place. Adding diversification is now central to its model. Its early October acquisition of The Stars Group takes the strategy a step further up the ladder. 

For investors, Flutter's expanding footprint overseas continues to excite. An estimated reduction in full-year losses state-side is a clear positive. But with governments globally under pressure to raise tax revenues and either reduce debt or fund increased spending, the gaming industry is likely to remain a relatively easy target, providing reason for investors to proceed with some caution.

Positives: 

• Diversity of both business type and geographical location
• Targeting US growth

Negatives:

• Gaming taxes in both Ireland and Australia have recently increased
• UK is a very competitive market

The average rating of stock market analysts:

Hold