Flutter Entertainment heads towards US profits

Flutter Entertainment’s (FLTR) announcement last month that it is thinking about an additional listing in the US, which could ultimately lead to a primary listing, highlighted the progress the gambling giant is making across the Atlantic. Its US business, FanDuel, is a market leader and the company’s new revenue driver. It took half of the online sportsbook market in the US in the fourth quarter of 2022, a 10 percentage point improvement on the previous year, and consumers turned to it in record numbers to bet on this year’s Super Bowl.

These results support the strategic focus on the US. American revenues of £2.6bn were at the upper end of management’s guidance, while losses narrowed by 6 per cent to £250mn. Average monthly players increased by 49 per cent to 2.3mn. The board remains confident that US operations will achieve positive cash profits this year, in what is a key market for international gambling stocks.  

On the flipside, ex-US earnings of £1.3bn disappointed and led to a 6 per cent markdown of the shares. The posting was at the lower end of the guidance range of £1.29bn-£1.39bn, with a mixed top-line performance. While international sales rose by 31 per cent, helped by the acquisition of Italian market leader Sisal in August, UK and Ireland sales rose by only 4 per cent and Australia sales contracted by 2 per cent.

Earnings took a £160mn hit due to regulatory changes, player safety measures in the UK and Ireland, and tax changes in Australia, while “customer friendly sports results” in December cost the business £40mn.

There are promising supports for old-world progress, though. The Sisal purchase looks like a shrewd piece of business. Its revenues were up by a third in the year, its cash profits up by 22 per cent, and its online market share took 140 basis points of gains.

Peel Hunt analysts argued that “international is well placed for growth in 2023 as it laps market exits and product upgrades start to come through”.

Overall net debt shot up to £4.6bn from £2.6bn in 2021, driven by acquisitions, giving a leverage ratio of 3.9 times. Management is confident that Flutter’s free cash flow – which fell from £563mn to £510mn in the year – and US profitability “will facilitate rapid de-levering” to get the ratio back down to its medium-term target of one to two times. 

Shore Capital analysts said that “FanDuel continues to be the main valuation driver, although following the recent rally in the share price is, in our view, increasingly reflected in the valuation”. We concur. Hold.

Last IC view: Hold, 10,495p, 12 Aug 2022