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Flutter: A buy highly likely to remain intact

Published 09/08/2023, 08:55
UK100
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FLTRF
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Investors placing their bets on Flutter Entertainment PLC (LON:FLTRF) have been handsomely rewarded of late, and this update provides further proof that the US remains a particularly exciting area of growth.

The half-year marks an important step change to fortunes in the US, which the company describes as a “profitability inflection point”. Adjusted earnings of £49 million compared with a loss of £132 million the year previous, and there are increasing signs that the heavy investment into this potentially massively rewarding market is beginning to pay dividends. The group maintains that the total addressable market in the US should reach more than $40 billion by 2030, and Flutter is positioning itself to become a leading light.

The FanDuel sportsbook in the US is going from strength to strength, with revenues of £79 million representing a growth of 63%. The sportsbook market share for the second quarter was 47%, with FanDuel adding over two million new players during the half, an increase of 18%. At the same time, the group is also seeing strong growth in the iGaming business, with market share ticking up again to stand at 23%.

The increasing importance of the US in Flutter’s evolution is evidenced by the fact that the region now accounts for 38% of group revenues, as compared to 25% for each of the UK and Ireland, and International divisions. Flutter has decided to consolidate its position further in the US, with an additional listing now planned for either late this year or early next, which should provide a higher profile and more access to capital markets. In due course, and subject to shareholder opinion, this could even result in a full transfer of the listing to the States.

In the meantime, the other units are also generally making their own notable contributions. Revenue growth of 13% in the UK and Ireland has been helped along by some improvements to player products, alongside some Paddy Power success on social media and further traction from Sky Bet customers. The International arm, already being driven by the recent acquisition of Italian company Sisal, increased revenues by 8%. Australian revenues dipped by 1% against strong Covid comparatives and recent tax changes, but with the unit contributing 12% of group revenues the impact is extremely limited.

At a group level, revenues increased by 42% to £4.8 billion, ahead of the expected £4.7 billion. Adjusted earnings of £823 million were also ahead of the estimate of £763 million and a significant hike from the £476 million the year previous. Pre-tax profit of £83 million, largely driven by improving fortunes in the US and the immediate impact of the Sisal acquisition, compared to a loss of £51 million last year. Average monthly players grew by 28% and now stands at 12.3 million, with the US seeing growth on this metric of 43%.

Regulation in the sector, as evidenced recently in Australia, is something of a constant overhang which is par for the course. In the UK, the industry has already seen a reduction to a £2 maximum stake for fixed-odds betting terminals, a ban on gambling using credit cards, and the possibility of stricter affordability checks also being considered. Furthermore, a new white paper by the UK government could add further hurdles in due course following its proposals, which Flutter has welcomed as a “significant moment” for the sector.

Even so, Flutter is firing on its US growth cylinders and is also lining up its other existing regions to produce significantly profitable returns. It is also on the lookout for further bolt-on, “local hero” opportunities in high-growth markets and in the meantime is maintaining guidance for the year, with adjusted earnings expected to come in between £1.4 and £1.6 billion. The subject of a return to the dividend payment is also under discussion, with an eye on the net debt position potentially delaying any announcement. After a breathless run of late, where the shares have added 68% over the last year as compared to a rise of just 0.5% for the wider FTSE100, there is inevitably likely to be an element of profit-taking in opening trades. However, this does not detract from the immediate prospects for the group, with the market consensus of the shares as a buy highly likely to remain intact.

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