Flutter revenues rise as firm gambles on the long term

Increasing investment in the US unit is impacting profits at the FTSE 100 gambling group, but the strategy of short-term pain for long-term gain is beginning to show signs of success, says Richard Hunter.

Flutter is keeping a sharp eye on the future, and the performance of its US business will be a key driver in achieving its ambitions.

The US unit, propelled in particular by its FanDuel operation, has had another successful period with market share rising to 51% and with market-leading positions in most of the states in which it operates. While the unit was loss-making for the half-year, the US turned profitable in the second quarter, underpinning Flutter Entertainment (LSE:FLTR)’s hopes of full profitability for 2023. With the US now accounting for almost a third of group revenues, continued investment is being made in the region and while this is impacting profits in the short term, the outlook for net revenues has been increased to £2.3 billion to £2.5 billion for the year.

• Find out about: Trading Account  | Share prices today | Top UK shares

Meanwhile, the UK and Ireland business is having a rather more difficult year, with the group’s investments into safer gambling initiatives and strong comparatives against a previous year affected by various lockdowns and the tailwind of some large sporting events weighing on the numbers. This unit also accounts for around a third of overall revenues, and these declined by 4% over the period. The group maintains that while it is closely monitoring any signs of consumer retrenchment given an increasingly difficult economic backdrop, there are currently no discernible signs of a slowdown.

Flutter’s international presence is also contributing to a geographically diverse business providing idiosyncratic opportunities, such as the Australian unit, which accounts for 18% of revenues and which has seen a 10% growth this year in Average Monthly Players. With the acquisition of the Italian company Sisal now completed, the importance of the international footprint continues to grow, and the possibility of further acquisitions remains on the table.

Of course, such acquisitions have an impact on the company’s financial performance, and net debt increased by 12%. As such, the group is not yet ready to return to the payment of a dividend, which will be continually reviewed until it becomes prudent. In the meantime, Flutter is confident that its ability to generate cash will enable the debt position to be reduced aggressively and quickly over the medium term.

• FTSE 100 backed to go higher, despite UK uncertainty
• Stockwatch: the best play on Bank of England’s dire economic forecast

At group level and with these factors in mind, the performance is mixed. Average Monthly Players overall rose by 14%, contributing to revenues which rose by 9% to £3.4 billion, ahead of expectations. However, a charge for amortisation of £286 million completely wiped out profit for the period, with a pre-tax loss of £51.4 million comparing with a profit of £77 million the previous year and certainly way shy of expectations.

The international business generally is where the real opportunities lie, and the strategy of short-term pain for long-term gain is beginning to show signs of success. In particular, the group has, and continues to target, regions where Flutter’s presence in podium position brands provides high-growth opportunities.

The ongoing threat of regulation and the delay of the Gambling Act Review White Paper have been thorns in the side for the UK sector, even though Flutter has made some proactive changes to its business (such as the safer gambling initiatives) in an effort to head any findings off at the pass.

The shares have fallen by 34% over the last year, as compared to a gain of 4% for the wider FTSE 100, although over a three-year period the price remains ahead by 44%. In the meantime, with an international presence bolstered by a soon-to-be-profitable US unit, hopes remain high and the market consensus of the shares as a strong buy incorporates the longer-term view.