Flutter Buyback Shouldn’t Imperil Credit Rating, Says Moody’s

Posted on: October 7, 2024, 05:02h. 

Last updated on: October 8, 2024, 09:37h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Flutter Entertainment’s (NYSE: FLUT) recently announced that plans to repurchase up to $5 billion of its shares over the next several years are unlikely to endanger its credit rating.

Flutter FanDuel
The Flutter logo at a corporate office. Moody’s says the company’s recently announced share buyback plan isn’t a threat to its credit rating. (Image: The Independent)

That’s the take of Moody’s Investors Service, which rates the FanDuel parent “Ba1,” or one notch into junk territory. Flutter announced the buyback plan on September 25, reiterating its goal to drive long-term leverage to 2x to 2.5x earnings before interest, taxes, depreciation, and amortization (EBITDA).

We understand that the company could reduce the programme’s scope should its performance materially deviate from its current medium to long-term growth expectations and 2027 guidance if its net leverage ratio target would not otherwise be met,” observed Moody’s. “Flutter’s commitment to a medium-term net leverage ratio target of 2.0x-2.5x, which we estimate is broadly equivalent to a Moody’s-adjusted gross leverage ratio range of roughly 3.0x-3.5x, is an important consideration underpinning our assessment of its credit quality.”

As Moody’s pointed out, Flutter could exceed its stated leverage target if it finds compelling growth opportunities that would allow it to rapidly get leverage back to the desired range.

Flutter Has Flexibility with Buyback Plan

Flutter’s repurchase program is one of the largest announced in the gaming industry in recent years, and comes with a high level of flexibility. In addition to the multiyear timeframe, Flutter isn’t obligated to buy back $5 billion worth of its shares. That’s the case with any corporate repurchase effort.

Still, the return of capital to shareholders is a reflection of Flutter’s long-term confidence in its business — esteem fortified in large part by FanDuel’s dominance in the US online sports wagering space and rising foothold in iGaming.

Moody’s said it expects Flutter will repurchase its shares with cash on its balance, generated free cash flow, and debt while not exceeding the guidelines of its current rating.

Flutter leverage
A chart detailing Flutter’s leverage and ability to implement its $5 billion buyback program. (Image: Moody’s Investors Service)

“The timing and amounts throughout the deployment will be subject to a number of factors, including economic and market conditions. Flutter also indicated that the programme will be subject to its net leverage ratio being either within its target range or likely to return within that range in the short term,” added the ratings agency.

Flutter Long-Term Outlook Bright

Flutter is bullish in its projections for the growth of the US and global gaming markets over the next several years, as the midpoint of its 2027 revenue guidance suggests sales of $21 billion representing a three-year compound annual growth rate (CAGR) of 14%.

The Betfair parent said 2027 free cash flow generation could reach $2.5 billion, which could support the aforementioned buyback plan and potentially more shareholder rewards.

“The buyback programme’s size reflects Flutter’s confidence in its long-term growth forecasts and 2027 guidance and is in line with the revised financial policy it announced at the end of March 2024,” concluded Moody’s.