US growth drives Flutter Entertainment's return to profit

Flutter Entertainment’s (FLTR) penetration of the US gambling market is paying off, judging by the Paddy Power and Betfair owner’s half-year results. The group’s Stateside business (FanDuel) turned profitable, driving overall cash profits up by three-quarters to £765mn. And an additional listing across the Atlantic is moving closer. The culmination of the shareholder-approved plan is expected to come late in the fourth quarter of this year or early in the first quarter of next, and there is the possibility of the primary listing ultimately moving over the Atlantic, another kick in the teeth for a struggling London market.

Chief executive Peter Jackson said the US division is “now at a profitability inflection point, helping transform the earnings profile of the group”. This was a fair enough statement, with the segment’s adjusted cash profits turning positive at £49mn as revenues grew by 63 per cent to £1.8bn. US gamblers are clearly buying into the brand, with FanDuel taking a 47 per cent share of the sports book market in the second quarter.

Customer numbers were up across all markets, though were especially boosted by growth in the US and the integration of Italian gambling operator Sisal, which was acquired in August last year. At the group level, average monthly player numbers were up by 28 per cent year on year to 12.3mn.

The performance of Sisal drove international revenues upwards by 85 per cent to £1.2bn. Elsewhere, UK and Ireland revenues rose by 13 per cent to £1.2bn on the back of both online and retail market share gains, while Australia revenues fell by 2 per cent to £601mn as the business faced tough pandemic comparatives and tax challenges Down Under.

A potential cause for concern is the debt position. Year-on-year net debt was up by £1.6bn, mostly due to the purchase of Sisal. However, the US growth opportunity on offer should help with de-leveraging – a current pro forma leverage ratio of 3.3 times is lower than the 3.9 times recorded at the end of last year.

The growth outlook for Flutter Entertainment is undoubtedly attractive, but it looks like this is already accounted for by the relatively expensive valuation across different metrics. According to FactSet, the shares trade hands at 29 times on a forward price-to-earnings basis and at 27 times on an enterprise value to cash profits ratio basis. These are both above the five-year averages. Hold.

Last IC View: Hold, 12,665p, 02 Mar 2023