Deutsche Bank issues buy rating for Flutter

Operator increased its stake in FanDuel to 95% in December.

Deutsche Bank Research on Friday issued a buy rating for Flutter Entertainment.

Flutter is scheduled to announce preliminary results for its fiscal year 2020 on 2 March.

DB noted Flutter made a splash on 3 December, when it increased its stake in FanDuel to 95%; Boyd Gaming owns the other 5%. FanDuel is the leading online sportsbook in the US, the bank said.

Since that acquisition, Flutter’s share price is down 2% while its peers – which DB defined as Entain, 888, Gamesys and Playtech – saw their stock rise by an average of 17%.

“We know the run of sports results was particularly favorable in December and into Q1 FY21, with the absence of crowds driving more unpredictable outcomes,” the bank wrote in its guidance report. “We believe this should more than offset the impact of the extended lockdown on its retail business (just 4% of FY21e Ebitda). We have seen Q4 upgrades from most of Flutter’s peers, and see upward pressure on consensus forecasts.”

In November, Flutter said it expected to be the first operator to reach GGR in excess of $1 billion in the US, DB noted. Since that statement, the company said it has pulled off successful launches in Michigan and Virginia, making the FanDuel Sportsbook live in 10 states.

The bank noted Flutter’s shares are down 7% in 2021, but DraftKings share price has increased by 29%.

“Some investors are put off by Flutter’s complexity (relative to US pure plays such as DraftKings). But, given the extent of the valuation gap, along with a favorable backdrop for trading in H1 FY21, we see definite scope for a short-term rally,” the bank wrote.

When Flutter makes its preliminary results announcement, DB is expecting a positive message. While there also will be some increase in projected US start-up losses, the bank said the results should be seen as evidence of Flutter’s ability to invest to maintain its “dominant leadership position” in New Jersey and Pennsylvania, the two biggest betting and igaming states.

Flutter has managed to retain a consistent combined market share of more than 30% and the pace of new states preparing to legalize sports betting “appears to be rapidly growing,” the bank added.

Downside risks to Flutter’s US operations include any Covid-related hit to sporting events, evidence of “weak execution” of its acquisition of Stars Group, and a negative outcome in the long-running, $870m legal dispute with Kentucky.

Michael Bartlett

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