Flutter Entertainment PLC (LSE:FLTR) shares were well off the pace, dragging rival bookie Entain PLC (LSE:ENT) down with them, after underwhelming full-year results.
The owner of the Paddy Power and Betfair brands said the final quarter of 2021 was a challenging one in the UK & Ireland with a lot of sporting results going in favour of the punter.
The company also took a £543mln non-cash charge for amortisation of acquired intangibles, which meant it posted a reported loss of £288mln for the year.
Reported revenue grew 37% year-on-year, benefiting from the May 2020 acquisition of The Stars Group (NASDAQ:TSG, TSX:TSGI), although underlying earnings (EBITDA) were 6% lower reflecting increased US investment and regulatory impacts in its international business.
The latter is clearly in the company’s mind as yesterday it launched its inaugural sustainability strategy, the “Positive Impact Plan”, in which it outlined plans to make the world a happier place and have us all singing “kumbaya” as we tear up our losing betting slips.
All commendable stuff, although some were not impressed.
Well-timed virtue signalling
"Talk about a cop-out. Flutter’s trying to sweep its lacklustre UK performance under the rug with some well-timed virtue signalling,” grumbled Freetrade analyst Gemma Boothroyd.
“Though it’s far from all bad news for the gambling behemoth. Flutter’s revenue shot up by 37% last year to US$6bn but its main markets of the UK and Ireland were relatively flat performers. That’s not ideal for a year when demand should have skyrocketed as sporting events found a new post-pandemic normal,” Boothroyd said, sounding angrier than a punter who has had £50 on Russia to win the next World Cup.
“Being able to point the finger at changing legislation while emphasising its safe gambling tools makes disappointing UK performance appear, at the very least, a bit more ethical.
“Make no mistake, its initiatives thus far are an attempt to shy away from the watchful eyes of regulators. They’re trying to get ahead of impending legislative changes, this isn’t some moral epiphany,” Boothroyd fumed, before accusing Flutter of taking a (tobacco) leaf out of big tobacco’s playbook.
“The move looks strikingly similar to Altria funding substance-use prevention programs for students. All the while, it simultaneously has a stake in Juul and continues to churn out packages of Marlboros. This, despite plenty of research showing these types of programmes, tend to have the opposite effect.
“As an investor, bonuses linked to a firm’s declining revenue might seem at odds with what you’re hoping the firm’s going to accomplish. It feels like a distraction from the truth and when the UK’s gambling white paper is released later this year, Flutter’s going to need to find some more new markets," Boothroyd said.
Make that a punter who has had £200 on Russia to win the World Cup as part of a win-double with Novak Djokovic signing up as a representative of the credit card firm Visa (NYSE:V).
Russell Pointon at research house Edison Group was a little more measured in his assessment of Flutter’s damage limitation plans.
“As the UK government seeks to introduce new gambling legislation later this year, Flutter have taken a series of steps to reduce dangerous gambling activity,” Pointon noted.
“Despite a somewhat challenging year, the group’s continued expansion will in time produce results and a comprehensive and proactive strategy should aid Flutter’s preparedness for eventual legislation," he added.
Meanwhile, the company said in today’s results announcement it invested more than £45mln in advertising, research, people and training on safer gambling.
“In the UK and Ireland we introduced several new measures such as a £10 staking limit trial across all our online slots games and brands and a ban on credit card deposits in Ireland. We also continued to iterate our ‘Triple Step’ approach to affordability,” the company said.
“With a presence across a multitude of regulatory environments and cultures, we know there is no ‘one-size-fits-all’ solution to promoting safer gambling. Instead there are universal principles we can employ across our divisions, leveraging global scale, capability and expertise to provide players with the tools, information and support they need to Play Well,” the company said.
Peel Hunt says shares are well worth a punt
The broker Peel Hunt, which has a “buy” recommendation on the shares, seemed happy with the results.
It is forecasting 12% revenue growth for the current year, with growth accelerating in the second half of the year as the comparatives get easier.
“Flutter has noted that Russia and Ukraine contributed £60mln in FY21, 4% of FY21 group EBITDA (ex US) although the exposure has been falling since FY20. Clearly, uncertainty remains over the sustainability of these revenue sources. In relation to the US, management reiterates its expectation that it will be EBITDA positive in FY23E,” the broker said.
“We believe that after a period of decline the shares represent good value,” the broker said.
The shares fell 14% to 9,292p in the morning session, well short of Peel Hunt’s 14,500p target price.
Shares in Entain, which owns Ladbrokes and Coral, were down 5.4% at 1,592.5p ahead of the company’s results on Thursday.