November 7, 2019
Flutter Entertainment PLC
US & Australia show impressive Q3 performance
Our view: Our positive view on Flutter mainly revolves around the opportunity for its tie up with Stars Group that offers 50% EPS upside on a successful completion. The group’s outlook remains on track following the Q3 trading update that saw 10% YoY growth. Within the mix, the US was the most positive part with FY19 losses targeted to narrow from an original expectation of a £55m loss to £40-45m loss. Elsewhere, Australia saw a very impressive 19% growth, online fell -1% against a tough comp that included the football World Cup with additional headwinds from market cut-offs & customer protection measures while retail performed at the better end of guidance. The group has a consistent record and this was demonstrated again today. We have a small uplift to profits following the US loss reduction.
Key points:
Online -1%: This was always going to be a tough quarter with the group suffering from a tough Wold Cup comparative, market switch offs (Switzerland, Serbia, Slovakia and Albania) and enhanced customer protection measures. Underlying growth was said to be nearer +5% ex these.
Australia +19%: this is a very impressive performance helped by a high sports margin that was c170bp ahead of the statistical norm. The group used the opportunity to invest in marketing that also helped drive the revenue line. The group has done an impressive job on the Australian growth to help mitigate the point of consumption tax
UK Retail -9%: with sportsbook up 5% and gaming -37% - an improvement from -44% in Q2 as the machine income starts to improve from the bottom in Q2 following introduction of the £2 stake limit. The group believes it will see a progressively better performance as it will benefit from the competition shop closures and will fall to the better end of its -33%--43% target.
US +67%: as it benefited from launches in 5 new states; two online – Pennsylvania and West Virginia; and 3 retail – Iowa New York and Indiana. The group has exceeded revenues in the US and will end the year with a £40-45m loss compared with £55m previously guided.
Forecasts adjusted for lower US losses: The group is targeting an ex US EBITDA and pre IFRS 16 EBITDA of £420-440m (therefore £460-480m post IFRS 16). Our post IFRS 16 ex US is at the bottom end of this range at £421m and we take a slightly more cautious view on current online growth.