Flutter Entertainment PLC (LON:FLTR) reported a mixed set of half-year results on Wednesday, with revenues higher but profits falling due to tax and regulatory changes in the UK and Australia.
Turnover at the FTSE 100 company, known at Paddy Power Betfair until May this year, was up 18% year-on-year to £1.02bn, with contributions from online returning to growth in the second quarter, Australia up 16% over the half and the new US unit up 148%.
Retail revenues from the Paddy Power bookies shops were down 4% as the imposition of the new £2 stake limit for fixed-odds betting machines (FOBTs) was offset as punters bet on sports instead.
Group profit before tax fell 24% to £81mln, but underlying earnings (EBITDA) was down 10% to £196mln and if the incremental £47mln of taxes and duties in the period is ignored, EBITDA was up 15%.
An interim dividend of 67p was flat compared to last year, as free cash flow increased 29% to £139mln.
“All divisions are performing strongly on an underlying basis and have responded well to the challenges faced,” said chief executive Peter Jackson.
Diversification strategy
He said he was pleased with the progress being made to build a “more diversified and sustainable business”.
The US business, built around the FanDuel fantasy sports brand acquired last year, grabbed 50% of the sports-betting market in New Jersey in the period as its daily fantasy business converted customers to the sportsbook.
Jackson has high hopes for a newly launched Pennsylvania operation and prospects for eight other states that now allow online sports betting.
US EBITDA profits fell 75% to £3mln in the half reflecting the increased investment, which is expected to grow to an loss of roughly £55mln for the full year from much heavier investment in customer acquisition in both fantasy and sports betting, which is typically weighted to the second half of the year as the NFL season kicks off in September
Excluding the US losses, Jackson now expects the group as a whole to generate underlying EBITDA of between £420mln and £440mln for the full year.
Analyst views
Broker Peel Hunt said first-half profits were better than it forecast but full-year guidance was in line with market expectations.
Analysts admit the "big picture investment case is appealing", but "it is hard work to pick apart the multiple moving parts" and "it is too early to invest in the potential in the US".
Over at Shore Capital, analysts said to achieve its estimates, the group will need to see a modest improvement in the underlying trends witnessed in the second quarter.
With the shares trading at 19 times earnings, excluding US losses, ShoreCap has a 'sell' rating as it sees this as "rich versus the peers, especially given the modest underlying trends in its largest channel, online (ex Australia)".
Deutsche Bank noted that the shares have spiked of late on bid speculation, "and this cannot be ruled out, given potential upside in the US on a five-year view".
Flutter shares were up 1.5% to 6,320p on Wednesday morning.