View from the City: Entain and Flutter's US businesses remain the key share price driver
Richard Stuber, director, travel and leisure research at Numis Securities Limited, discusses BetMGM's bullish TAM forecast and Flutter's ongoing legal fight with Fox
April saw mixed share price performances from the UK-listed operators, with Entain seeing its shares up 11% in contrast with Flutter falling 4%. Current trading for those companies which reported were all strong with online growth well over 30% although all management have warned of tougher comparatives as the economy reopens and customers switch spending to other leisure segments (including retail). Yet again however, it is the relative prospects of their US businesses which has been the key share price driver. This region remains in the spotlight, highlighted by BetMGM’s Investor Day which saw a raft of analysts follow up with upgrades. Management raised the TAM (total addressable market) by more than 50% to $32bn and coupled with the strong recent market share gains gave confidence that these long-run targets could be achievable. Meanwhile, while Flutter’s trading update was positive, incremental newsflow on its relationship with Fox (which filed an arbitration against Flutter to enforce its rights to acquire a stake in FanDuel) was unhelpful against a much fuller valuation (24x 2022E EV/EBITDA vs Entain on 11x). While the US is currently not material for the likes of 888 and Playtech, they both continue to call out their US credentials with 888 (+7% in April) launching into new states this year and Playtech’s (+5%) April launch in Michigan with Parx. On analyst conference calls, aside from the relentless focus on the US, there has been a noticeable increase in time devoted by the company and analysts on tools and processes to address responsible gambling. All companies appear to be much more on the front foot to tackle the tighter restrictions expected from the UK gambling regulator as part of the Gambling Act 2005 review, but the acknowledgement to minimise harm is equally necessary to address the rising ESG scrutiny demanded from investors. The question remains though, will gambling ever be viewed as a harmless form of entertainment and be an acceptable constituent of all fund-managers’ portfolios?