Gambling group Flutter Entertainment reported a sharp fall in full-year profits but had started the new year with strong momentum and higher revenues.
The Paddy Power owner saw group revenue more than double to £4.3bn in 2020, compared to £2.1bn a year ago. Annual pre-tax profit fell 99% to £1m, after the deduction of £431 in non-cash acquisition accounting adjustments.
Betting companies took a hit last year after the cancellation or postponement of major sporting events such as the European football championship and Wimbledon tennis tournament.
On a pro forma basis, after the acquisition of Stars Group last year, the group said adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 13% to £1.23bn on revenue that was up 27% at £5.26bn.
Analysts expected Flutter to report pro forma revenue of £5bn and adjusted EBITDA of £1.16bn for 2020, according to consensus estimates provided by the company.
Flutter, which also owns FanDuel and PokerStars in the US, said group revenue had risen 36% in the first seven weeks of the year to February 21 driven by growth in player volumes, while sports results had also been favourable relative to expectations, particularly in the UK and Ireland.
It forecast a core monthly loss of £9m from its UK and Irish retail estate as Covid-19 restrictions continued to hit trading.
“The latest government guidelines suggest that our UK shops may re-open in mid-April while it looks like it could be May at the earliest before we are able to reopen our Irish shops,” Flutter said.
It added that plans in Germany to introduce a 5.3% turnover tax on online poker and slots from July 1 “would effectively make the German online gaming market commercially unviable for regulated operators” and guided for a £15m – £25m hit in 2021 if it came into effect.
Interactive investor head of markets Richard Hunter said the US, where sports gaming laws are being relaxed, was a key market after the merger and acquisition deals with the Stars Group and FanDuel.
“Flutter’s FanDuel sportsbook is now live in 10 states, the recent Super Bowl added 350,000 new customers (largely contributing to the company having achieved 90% of customer acquisition already in 2021 compared to last year) and, further out, the estimate is that the overall addressable market for its brands will be worth over £14bn in 2025,” he said.
“In the meantime, for its US online business, market shares of 40% for sport and 20% for gaming are an extremely strong base from which to seek even more opportunities.”
Hunter said increased regulation in the UK and the need to find tax revenue as countries look to repair economies battered by the Covid-19 pandemic made the gaming industry an “easy target for authorities needing to raise taxes”, adding that “this could become a focus as governments look to repair their bruised financial positions following the major costs incurred”.
“Even so, Flutter is expanding at a rapid clip and the potential has been reflected in a share price which has risen by 74% over the last year, as compared to a decline of 1% for the wider FTSE100.”
“It is possible that this breathless expansion, along with some competition and regulatory concerns leave the shares up with events, with the market consensus coming in at a hold, albeit a strong one. However, should the pace and scale of growth persist, it is equally possible that a rerating of prospects could follow.”
