Interactive Investor

ii view: Flutter shares jump higher

10th August 2021 16:01

Keith Bowman from interactive investor

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This online sports and gaming company is growing both in the USA and elsewhere. Buy, sell or hold?  

First-half results to 30 June 2021

  • Revenue up 99% to £3.05 billion
  • Adjusted earnings up 75% to £597 million
  • Net debt down 7% to £2.68 billion
  • No dividend payment 

Guidance:

  • Flutter US expected to generate positive earnings (EBITDA) in 2023

Chief executive Peter Jackson said:

“The first half of 2021 exceeded our expectations as we made substantial progress against our operational and strategic objectives while maintaining excellent momentum in growing our player base.

“Our global sports businesses benefitted from further enhancements to our products and the return to more normalised sporting calendars while we sustained our strong performance in gaming despite the challenging comparatives set last year.”

ii round-up:

Betfair owner Flutter Entertainment (LSE:FLTR) today reported surges in both adjusted earnings and revenues, pushed higher by both its previous acquisition of Star Group in North America and a return to more normalised sport following the pandemic. 

Adjusted earnings rose by 75% to £597 million, with revenues virtually doubling from the first half of 2020 to £3.05 billion. Despite current losses, its US business is now expected to be profitable from 2023. 

Flutter shares rose by more than 8% in UK trading, bringing their gain since pandemic market lows back in March 2020 to over 120%. Shares for smaller rivals Entain (LSE:ENT) and 888 Holdings (LSE:888) are both up by more than 350% during that time. 

A 40% increase in average monthly players helped fuel the stellar Flutter performance. In the US, second quarter revenue exceeded the half billion-dollar mark for the first time in any quarter. Its FanDual brand continued to spearhead US growth, with over $1 billion of marketing investment made to date. It now has a market share of 45% in the online sportsbook arena. 

Away from the US, average monthly players rose by 26%, aided by a more normal sporting calendar.  Australia proved a standout performer, helped by higher customer retention rates. Integration of operations continued to benefit its UK and Irish business. 

Net debt fell by 7% to £2.68 billion. Accompanying management outlook comments pointed towards a second half which had started well.

ii view:

Flutter Entertainment is a global sports-betting and gaming company. It operates through five divisions including the US and Australia. Group brands include Paddy Power, Betfair and FanDuel.  In late 2019, it agreed to buy Canadian online bookie and owner of Sky Bet and PokerStars brands, The Stars Group. Its UK stock market value of over £24 billion dwarfs Ladbrokes owner Entain in second place at over £11 billion.

For investors, an estimated forward price earnings (PE) ratio comfortably above the three-and 10-year averages suggests the shares are not obviously cheap. Heightened regulation in the likes of Germany needs to be remembered. As does many governments’ need to repair stretched finances following pandemic support; funds which could potentially come from increased betting taxes. 

That said, many consumers move to online betting, given closed high street outlets during the pandemic, may now stick. Expansion in the US market continues to be made, with a move to profitability predicted for 2023. Net debt has reduced, and the still halted dividend payment remains under management review. For now, and with the consensus analyst estimate of fair value per share currently standing at £162.90, momentum looks to remain with the shares. 

Positives: 

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

Negatives:

  • Losses in the US being generated
  • No dividend payment

The average rating of stock market analysts:

‘Buy’

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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