Flutter outlook unashamedly upbeat as US growth boosts earnings

Flutter’s decision to move its primary listing to the US in May 2024 lit a fire under the shares, and that momentum is showing few signs of slowing.

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The US business, which accounts for 43% of revenues, enjoyed a strong quarter with a 17% advance on the previous year, bolstered in particular by its FanDuel iGaming business and favourable results on its sportsbook, and it holds a top market share position in both. Meanwhile, the International division accounts for the balance of 57% of group revenues, and saw an increase of 15% on the corresponding period. Within that number the UK and Ireland business from where brands such as Paddy Power and Betfair emanate, is the largest international component accounting for 22% of overall group sales.

Flutter Entertainment (LSE:FLTR) is also on the acquisition trail, and has recently entered a market-leading position in Italy with the €2.3 billion (£1.9 billion) purchase of Snaitech as well as the $350 million (£260 million) addition of Brazilian company NSX in May. This adds to burgeoning growth, where strong progress has also been made in the likes of Turkey and India.

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These contributions led to another quarter of strong progress, with adjusted earnings rising by 25% to $919 million and revenues by 16% to $4.19 billion. These numbers were driven by an increase of 11% to 15.98 million average monthly players, although some non-cash impairment adjustments resulted in a drop of 88% to $37 million in net income.

The outlook is also unashamedly upbeat and the group has raised its guidance for the full year, where earnings of $3.3 billion are now expected, which would represent a jump of 40% on the previous year and which compares to a previous company estimate of $3.18 billion. Revenues are also expected to fare better, with guidance being increased from the previous $17.1 billion to $17.3 billion, which would be 23% higher than the corresponding period. In particular, Flutter has noted a number of events throughout the rest of the year which will keep the sporting calendar full, such as NFL and NBA in the US, as well as the start of the football season across Europe.

Of course, all is not plain sailing and for any number of reasons, shares in this sector are at the higher end of the risk spectrum. Although not an issue for this quarter, in recent times adverse sporting results have hindered profit margins. This is quite apart from problem gaining inevitably leading to increased regulation in many of its markets, while betting companies are also an easy target for governments aiming to raise additional income through taxes.

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Nonetheless, the group is beginning to scale up at pace across its geographies, with this diversification provides many benefits. The lack of a dividend is far less of an issue for US investors, and indeed strong cash generation has led to a target of $5 billion of share buybacks over the next three to four years, with $1 billion expected this year lending further share price support. This is in addition to ongoing investment in technology, as well as the potential for further bolt-on acquisitions should appropriate targets be identified.

Quite apart from access to larger pools of liquidity, the switch to the US has also resulted in Flutter’s inclusion in the Russell MidCap Growth index, which in turn has resulted in further upward buying pressure as trackers add the stock to their funds as well as heightening the group’s profile. Flutter has also kept a secondary listing in the UK, where the shares mirror the US moves and have added 60% over the last year, as compared to a gain of 10% for the wider FTSE TechMARK All Share index. A small element of profit taking has resulted in minor dips for the shares after hours in the US and at the open in the UK, but given the increasingly enticing global prospects the market consensus of the shares as a strong buy will no doubt remain intact.