ii view: wrong sporting results weigh on Flutter

A tough October for the Paddy Power brand owner but it is growing in the US. Buy, sell or hold?

Third-quarter trading update to 30 September 2021

• Currency adjusted revenue up 12% to £1.44 billion
• Average monthly players up 13% to 7,257, 000

Guidance:

• Now expects ex-US adjusted full-year earnings of between £1.24 billion and £1.28 billion, down a previous £1.27 billion to £1.37 billion

Chief executive Peter Jackson said:

"Flutter delivered a strong third quarter performance, with double-digit growth in our global player base. This resulted in the Group delivering revenue growth of 12% despite challenging comparatives including a concentration of key sporting events in the prior year.”

ii round-up:

Betfair owner Flutter Entertainment (LSE:FLTR) today reported a rise in third-quarter revenues but downgraded its full-year earnings forecast given October sporting results went against it and as the company exited the Netherlands. 

Currency adjusted quarterly revenues rose by 12% to £1.44 billion, although full-year adjusted earnings, excluding its US business, were downgraded to between £1.24 billion and £1.28 billion from £1.27 billion to £1.37 billion previously.

Flutter shares fell by over 4% in UK trading, having more than doubled since pandemic market lows back in March 2020. Shares for former takeover target Entain (LSE:ENT) and Playtech (LSE:PTEC) are up by 480% and 365% respectively during that time. Earlier in the year, US company Caesars Entertainment (NASDAQ:CZR) completed a £2.9 billion takeover of William Hill. 

Unfavourable sports results during the first 24 days of October hit adjusted earnings or EBITDA by around £60 million. Its temporary exit from the Dutch market had added a further £10 million hit. 

Currency adjusted sports revenues rose 17% in the quarter to the end of September to £906 million. Gaming related revenues improved by 5% year-over-year to £534 million.  

The former Paddy Power operates through five divisions including the US and Australia. Revenues for its UK and Irish business fell 5% in the quarter given a busier high-profile sporting calendar in the prior year. Australian revenue grew by a fifth, buoyed by pandemic lockdowns, while US revenues increased by 85%. 

ii view:

Flutter Entertainment is a global sports-betting and gaming company. Its 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 £23 billion dwarfs Ladbroke owner Entain in second place at around £12 billion.

For investors, problem gambling is an issue which critics of the industry are keen to address. An estimated forward price/earnings (PE) ratio comfortably above the three- and 10-year averages suggests the shares are not obviously cheap, and heightened regulation in places like Germany must be remembered. 

On the upside, many consumers have moved to online betting, given high street outlets were shut during the pandemic. Expansion in the US market also continues to be made, with a move to profitability previously predicted for 2023. And the still halted dividend payment remains under management review. For now, and with the consensus analyst estimate of fair value currently standing at £176, long-term momentum looks to remain in favour of the shares. 

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