Interactive Investor

ii view: Flutter makes progress ahead of US stock market listing

Owning brands such as Paddy Power, Betfair and tombola and with US growth leading the way. Buy, sell, or hold?

18th January 2024 15:53

Keith Bowman from interactive investor

Fourth-quarter trading update to 31 December

  • Currency adjusted revenue up 15% to $2.67 billion (£2.11 billion)
  • US currency adjusted revenue up 26% to $1.14 billion (£0.9 billion)
  • Non-US adjusted revenues up 8% to $1.53 billion (£1.21 billion)

Chief executive Peter Jackson said:

“In the US, FanDuel consolidated its sports leadership position during the peak quarter for sporting activity, while FanDuel Casino went from strength to strength.

“Outside of the US, the quarter traded in line with expectations, with continued strong momentum in the UK&I supported by recent product enhancements and International growth driven by our “Consolidate and Invest” markets.”

ii round-up:

Sports-betting and gaming giant Flutter Entertainment (LSE:FLTR) today detailed revenue at its fast-growing US business below its prior estimate, although it was better than the City’s worst-case estimate. 

Sales at its US FanDuel business rose by just over a quarter to £1.14 billion (£0.9 billion) despite being hindered by a series of customer friendly sporting outcomes. However, that was shy of management’s prior estimate of £1.29 billion. 

Shares in the FTSE 100 company, which is soon to list its shares additionally on the US stock market, rose by more than a tenth having come into this latest news up by almost a quarter in 2023. That’s similar to US betting rival MGM Resorts International (NYSE:MGM) and comfortably ahead of a near 4% rise for the FTSE 100 index.

Flutter, whose brands include Paddy Power and Betfair, said currency adjusted sales at its UK and Irish business including both its online and betting shops climbed 19% year-over-year to $647 million.

Australian sales fell 2% on a currency adjusted basis to $304 million, with sales on the same basis for its remaining international business improving 4% to $582 million.

Total currency adjusted sales for 2023 overall climbed 25% to $9.51 billion (£7.5 billion), led by a 29% increase in gaming sales and a 23% improvement for sports related sales.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the update, flagging the company as a ‘top pick.’

An additional listing for its shares on the New York Stock Exchange on 29 January remains subject to registration with the US Securities and Exchange Commission. Full-year 2023 results and management guidance for the 2024 financial year are scheduled for 26 March. 
  
ii view:

Generating its biggest slug of sales at around 38%, its US brands include FanDuel, FOX Bet and PokerStars. A further quarter of sales come from the UK and Ireland via brands such as Sky Betting & Gaming, Paddy Power, Betfair, and tombola, with Australia making up a further 12% of sales. Finally, its international business, accounting for another quarter of sales, trades via brands such as Adjarabet and Junglee Games in India and Sisal in Italy.

For investors, the potential for increased future regulation across any or all of its territories cannot be overlooked. Despite industry initiatives, problem gambling remains an issue both in the UK and overseas. Stretched government finances globally could also see taxes for industry players increased, group net debt had increased at its interim results because of its Italian acquisition, while no dividend is being paid unlike rival Entain (LSE:ENT)

On the upside, a US stock market listing could further shine a spotlight on Flutter and potential US growth, and there are hopes its US operation reports an adjusted profit for 2023. Average monthly players across the group overall rose by a fifth from 2022 to 2023, while other markets such as its previous move into India also warrant consideration.    

In all, and despite ongoing risks, a consensus analyst estimate of fair value at over £160 per share should give firm grounds for fans of this betting giant to remain optimistic about long-term prospects.  

Positives: 

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

Negatives:

  • Possible ethical concerns
  • No dividend payment

The average rating of stock market analysts:

Buy

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