ii view: Flutter targets cost savings and the US

The former Paddy Power firm is now growing in the US. Buy, sell or hold?

Full-year results to 31 December 2020

• Revenue up 106% to £4.39 billion
• Adjusted earnings up 109% to £889 million
• Adjusted earnings per share up 35% to 402.7p
• No dividend payment, down from 200p per share in 2019
• Net debt up to £2.81 billion from £265 million

Chief executive Peter Jackson said:

"2020 was an historic year for the Group as we completed our merger with The Stars Group (TSG), commenced the integration of our two businesses and increased our ownership of FanDuel in the US, whilst at the same time navigating the challenges presented by the Covid-19 pandemic.

We delivered a very strong financial performance in 2020, benefiting from our scale and diversification. While the global outlook remains uncertain, our momentum remains strong and we look forward to the future with confidence."

ii round-up:

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

It operates through five divisions including the US and Australia.  

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

For a round-up of these latest results, please click here. 

ii view:

Its Paddy Power Betfair division consists of the Paddy Power, Betfair and Adjarabet brands, including both online and retail operations. It includes over 600 Paddy Power betting shops across the UK and Ireland. The Stars Group or TSG division and operates in multiple jurisdictions around the world and holds its online PokerStars casino operations, while its Sky betting and gaming division is headquartered in Leeds. The Australia division holds its Sportsbet and BetEasy brands, while its US division consists of FanDuel, FoxBet, TVG, Pokerstars and Betfair brands and offers diverse products, including online and retail sportsbooks, online gaming, poker and TV broadcasting.

Recent years have seen the Dublin headquartered company growing by merger and acquisitions, particularly in North America. Betfair, The Stars Group and share stakes in US FanDuel have all been added to its armour. This latest financial year has seen it finishing the year as the first US online operator to reach over $1.1 billion in gross gaming revenue. 

For investors, regulation including the UK government's review of gambling legislation and increased German taxes offers some reason for caution. An estimated forward price/earnings (PE) ratio comfortably above the three-and 10-year averages also suggests the shares are not obviously cheap. But cost saving expectations from M&A have been raised, strong cross selling potential persists and management has evidenced a strong start to 2021. An overall addressable market for its brands worth over £14 billion in 2025 is difficult to overlook, with online sports betting expected to be available to 65% of the US adult population. In all, while some share price consolidation could be expected given a gain of more than 70% over the last year, shareholders might still be attracted by Flutter's long-term potential. 

Positives: 

• Diversity of both business type and geographical location
• Addressable US market expected to be worth over £14 billion in 2025

Negatives:

• Heightened regulation 
• Potential industry target for government tax increases

The average rating of stock market analysts:

Strong hold