Flutter's US sales skyrocket

Flutter Entertainment’s (FLTR) roll of the dice in the American market looks like it could soon start to pay off, with revenue booming stateside as other markets faltered. But the gambling company, which owns Paddy Power and Betfair, declared a loss on the back of a chunky £286mn amortisation charge, while sales were hit by actions anticipating stricter gambling regulations in its key UK market.

The FanDuel brand took over half of the online US sports betting market share in the second quarter and the number of average monthly players in the half was up by 49 per cent to 2.2bn, with total US revenue of £1.1bn a 61 per cent improvement on last year, with the market almost overtaking the UK and Ireland as the company's main sales generator. But US adjusted cash profits were down by over half to a negative £132mn, despite a positive posting in the second quarter. Chief executive Peter Jackson said the company was particularly pleased with momentum in the US where “we remain firmly on the path to profitability in 2023”.

The top-line picture was more mixed across other geographic markets. UK and Ireland revenue fell by 4 per cent to £1.1bn, with “proactive safer gambling actions” (such as stake and deposit limits trials) having an impact as the business awaits the outcome of the UK government’s upcoming white paper on the gambling sector. International sales were down by 7 per cent to £633mn, in a market which saw the only decline in the average number of players. Australia was the other area of revenue growth for the business, with sales up 5 per cent to £612mn despite a challenging comparative.

Flutter is now more highly leveraged due to the £1.6bn acquisition of Italian gambling company Sisal earlier this month, with the leverage ratio up to 4.1 times against 2.3 times last year. The company also picked up online bingo operator Tombola in January for £410mn in cash. But attractive free cash flow and (assuming it happens) upcoming profitability in the US make this less of a concern.

Peel Hunt analysts think the shares are undervalued, but to get the share price moving upwards management needs to convince investors that it has established a better business base from which to grow higher-quality profits”.

The shares trade at 19 times the broker’s 2023 forward earnings forecast, which falls to 15 times for the following year. The US opportunity is enticing, but for Flutter and competitors such as Entain (ENT) and 888 (888) the UK white paper could include some nasty surprises. Hold.

Last IC View: Hold, 9,318p, 1 Mar 2022