By their very nature, results statements are backward-looking documents, but for Flutter this year’s annual report also signifies the end of an era.
Flutter Entertainment did a good job of overshadowing its own annual results by announcing just two weeks earlier a shareholder consultation over a potential dual listing for its share in New York.
The statement to the London Stock Exchange, still its listing home at least for now, noted that its board “regularly evaluates how best to position the group to deliver its strategy in the interests of shareholders”.
One area that the board had been “assessing for some time”, the statement continued, is the group’s listing structure. The Capital Markets Day held in New York in mid-November – a meeting which was attended by over 300 people – had “highlighted the growing importance” of FanDuel to the group as a whole and was on its way to becoming Flutter’s largest business by revenue and an ever-greater proportion of its overall value.
“In this context, the board has reached a preliminary view that an additional US listing of Flutter’s ordinary shares will yield a number of long-term strategic and capital market benefits,” the statement went on.
These benefits include enhancing the group’s profile in the US, better enabling the recruitment and retention of US talent, giving the group access to much deeper capital markets and to new US domestic investors, providing greater overall liquidity in Flutter shares; and the optionality to pursue, as a second step, a primary US listing – one of the criteria for access to important US indices.
That growing importance of the US was hammered home by the results. To take it from the top, FanDuel has achieved a clear market share advantage with 50% share in the fourth quarter and 21% share in igaming.
To illustrate the point, the company showed in the accompanying result presentation that FanDuel is the number one sportsbook in 15 of 18 states, with the outliers being limited to Colorado (where it still managed 33%), Iowa (42%) and Wyoming (18%).
Apart from the investments made ahead of the market launches in Maryland and Ohio – which respectively launched late last year and in January of this year – the company said FanDuel reported positive quarterly earnings before interest, tax, depreciation and amortisation (EBITDA) contributions in the second and fourth quarter.
US revenue was at the upper end of expectations at £2.6bn, up 67% year-on-year, while the yearly EBITDA loss was restricted to £250m – which was at the lower end of previous guidance.
This of course is merely some of the building blocks for what is to come. FanDuel is forecasted to be EBITDA positive for 2023 as a whole. Chief executive Peter Jackson – on the call with the analysts – put the case for FanDuel’s “compounding advantages”.
“We’re continuing to see higher levels of hold against or handle that our competitors do,” Jackson added. “We have a structural advantage in revenues, and we know that we are more efficient than anybody else from a customer acquisition perspective.”
New York conversation
It is against the backdrop of this operational performance that the potential for a dual listing in the US should be viewed. Indeed, James Wheatcroft at Jefferies in London suggested the move was the precursor to Flutter choosing New York as its primary listing over time.
Ivor Jones at Peel Hunt agreed.
“Flutter continues to pivot to North America and a US listing makes increasing sense,” he suggested.
But for all the US promise, it shouldn’t be forgotten that should the company list in the US, it will still be a global gambling entity and one that is already producing sizable profits. It achieved EBITDA of £1.62bn in 2021 and in revenue terms, while the US business is the largest revenue generator by geography, the UK & Ireland business was still worth £2.14bn despite the impact of various affordability and responsible gambling measures.
Australia contributed £1.26bn of revenue and the international business recently augmented by the addition of the Sisal acquisition, produced revenues of £1.68bn.
Combined, these parts of the business have provided both the engine and the fuel – in terms of profits – to propel the US business.
“FanDuel is proving its time advantage and the tie to a large global operator separates itself from any US competitor,” said Jordan Bender at JMP.
As Paul Leyland at Regulus Partners summed up the situation “it is hard to see how disruptors dent Flutter’s market share in key markets without a radical shakeup of the customer proposition”.
Although a primary US listing looks like an inevitability, what New York will be gaining – and London losing – is a global betting operator of unprecedented scale and reach. That has an impact not just on Flutter, but on the rest of the sector from top to bottom.
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