Flutter Stock Could Be Fantastic Thanks to FanDuel

Posted on: March 19, 2023, 02:38h. 

Last updated on: March 20, 2023, 01:07h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Flutter Entertainment (OTC: PDYPY) is based in Dublin and its stock trades in London. But analysts and professional investors believe the gaming company’s US exposure can support more upside in the shares.

The bulk of the operator’s US footprint is attributable to its 95% stake in FanDuel. Boyd Gaming (NYSE: BYD) owns the other 5%. FanDuel is a Goliath, controlling roughly 50% of the market. That’s more than its two closest rivals combined in the US sports wagering landscape.

The company, which offers sports betting in 17 states, was the first in the US to turn in a profitable quarter and is on pace to do the same annually this year.

Still, Flutter shares experienced a ceiling of sorts because the gaming company’s other brands, which include BetFair, Paddy Power, and Poker Stars, among others, operate largely outside the US. That means that despite the 95% interest in FanDuel, investors view the company as dependent on Europe and Australia, among other countries, to drive earnings and revenue. In the process, those investors assign a discount to the FanDuel stake.

Flutter May Have a Solution

Last month, Flutter told investors it’s mulling a New York listing of its shares. Flutter shares currently trade in the US but on an over-the-counter basis. That means the audience of both professional and retail investors in the states engaged with the stock isn’t as large as it would be if the name traded on the Nasdaq or the New York Stock Exchange (NYSE).

Susquehanna analyst Joe Stauff believes such a move will occur in the fourth quarter and will be a “value-creating event” for Flutter investors, in effect removing a 20% conglomerate discount investors assign to FanDuel, according to Barron’s.

We recently announced that we believe an additional US listing of Flutter’s ordinary shares will yield a number of long-term strategic and capital market benefits,” said Flutter CEO Peter Jackson in a statement. “We have begun an extensive consultation with our shareholders and early feedback has been supportive. We look forward to continued engagement with investors and stakeholders on this matter and we will announce the results of this engagement in due course.”

A US listing could benefit Flutter in another way. It might dampen investors’ calls for the gaming company to spin out FanDuel as a value-unlocking move. If Flutter trades in the US, the shares may receive a lift from the parent’s ownership of FanDuel due to the sportsbook operator’s enviable brand recognition in the States.

Other Factors in Flutter’s Favor

While US bettors and perhaps investors have enthusiasm for FanDuel, global market participants cannot ignore Flutter’s operations outside the US. Those businesses proved sturdy in the latter stages of 2022.

Additionally, if upcoming UK gaming reform isn’t as harsh as expected, that could be another catalyst for London-listed gaming equities, including Flutter’s. And the stock isn’t pricey.

It trades at “24.7 times estimated 2024 earnings, lower than an average of around 34 times among a basket of competitors, according to FactSet data,” reports Barron’s.