Flutter sees strong start to 2021 in US as FY profits fall
Gambling group Flutter Entertainment reported a sharp fall in full-year profits but had started the new year with strong momentum and higher driven by US betting.
The Paddy Power owner saw group revenue more than double to £4.3bn in 2020, compared to £2.1bn a year ago. Annual pre-tax profit fell 99% to £1m, after the deduction of £431 in non-cash acquisition accounting adjustments. and the dividend was pulled.
Betting companies took a hit last year after the cancellation or postponement of major sporting events such as the European football championship and Wimbledon tennis tournament. However, recreational player numbers grew by 19% as more people turned to online gambling, with the number of monthly internet players hitting 7.6 million in the last few months of 2020.
Flutter reported full-year 2020 earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.4bn, ahead of the £1.27bn - £1.35bn range forecast last November.
On a pro forma basis, after the acquisition of Stars Group last year, the group said adjusted EBITDA rose 13% to £1.23bn on revenue that was up 27% at £5.26bn. Analysts expected Flutter to report pro forma revenue of £5bn and adjusted EBITDA of £1.16bn for 2020, according to consensus estimates provided by the company.
Flutter, which also owns FanDuel and PokerStars in the US, said group revenue had risen 36% in the first seven weeks of the year to February 21 driven by growth in player volumes, while sports results had also been favourable relative to expectations, particularly in the UK and Ireland.
It forecast a core monthly loss of £9m from its UK and Irish retail estate as Covid-19 restrictions continued to hit trading.
“The latest government guidelines suggest that our UK shops may re-open in mid-April while it looks like it could be May at the earliest before we are able to reopen our Irish shops,” Flutter said.
It added that plans in Germany to introduce a 5.3% turnover tax on online poker and slots from July 1 “would effectively make the German online gaming market commercially unviable for regulated operators” and guided for a £15m - £25m hit in 2021 if it came into effect.
Flutter maintained its 40% US market share, adding that it expected more than £14bn worth of business on offer by 2025 as more states than previously anticipated open up to sports betting. It said more new customers bet with FanDuel during last month’s Super Bowl week than in the whole of 2019.
Interactive investor head of markets Richard Hunter said the US, where sports gaming laws are being relaxed, was a key market after the merger and acquisition deals with the Stars Group and FanDuel.
Hunter said increased regulation in the UK and the need to find tax revenue as countries look to repair economies battered by the Covid-19 pandemic made the gaming industry an "easy target for authorities needing to raise taxes", adding that "this could become a focus as governments look to repair their bruised financial positions following the major costs incurred".
"Even so, Flutter is expanding at a rapid clip and the potential has been reflected in a share price which has risen by 74% over the last year, as compared to a decline of 1% for the wider FTSE100."
"It is possible that this breathless expansion, along with some competition and regulatory concerns leave the shares up with events, with the market consensus coming in at a hold, albeit a strong one. However, should the pace and scale of growth persist, it is equally possible that a rerating of prospects could follow.”