GMVHY - Flutter: Imminent NYSE Listing For Sports Betting U.K. Parent Could Be Game Changer

2023-12-13 17:07:03 ET

Summary

• Flutter Entertainment plc's U.S. business, FanDuel, holds the largest share of the market, followed closely by DraftKings.
• BetMGM is the only other competitor with a double-digit market share, while the rest of the sites battle for the remaining share.
• Flutter Entertainment's listing on the NYSE will provide clarity for investors and allow for a direct comparison with other sector leaders.

Above: Sports ad gaming is in a double-digit CAGR growth cycle.

• New Flutter Entertainment plc (PDYPF, PDYPY) ticker FLUT will begin trading on the NYSE on January 29th.
• ADR holders need to contact brokers or sponsoring banks for pro rata payments as part of the forced sell process.
• The listing for the first time will give clarity to investors in comparing, in dollars, FLUT to other sector leaders.

We are guiding the NYSE debut as a strong buy.

Premise: On November 12, we reiterated a strong BUY recommendation on the shares of Flutter Entertainment, the UK/Ireland-based largest online wagering operator on the globe. We focused on the US-traded ADR ( PDYPY ) with a price target ("PT") of $117. That call assumed a continuing trading profile of the stock, since it was not yet clear when the UK parent would confirm a date for its plan to trade the stock on the NYSE and drop its Dublin listing.

The underlying propulsion for the ADR has always been the performance of FLTR's U.S. business flagship, FanDuel, which holds the biggest share of market with DraftKings Inc. ( DKNG ). The two top sites exchange the #1 share of market position almost monthly. At this writing, FanDuel sits at #1 with 39.3% vs. DKNG at 34.1%. DKNG has been #1 as many times as has PDYPY. What is most important here is that, combined, they produce over 73% of the monthly wins in the U.S.

The only double-figured peer among the 15 active sites in the market is BetMGM (50% owned MGM Resorts International (MGM) and the UK's Entain Plc (GMVHF), (GMVHY), who claim an 18% share. If you add MGM to the two leaders, you have 91% of all U.S. sports betting action in the hands of three competitors at this point. That leaves ~13 sites battling for the crumbs, as it were.

Above: The trajectory of FLUT should be strong going forward to 2025 at least.

DKNG shares have had a great run this year, moving up a hefty 240%. Shares of parent Flutter in London are up 28%. Yet, based on events since our call, we are now prepared to guide the new NYSE arrival in USD going forward.

What's changed

Prospects are that PDYPY's FanDuel will move into profit in Q4 based on Q3 2023 results . DKNG may take a bit longer, but close.

DKNG faces a class action lawsuit in Massachusetts over what claimants assert as misleading bonusing. This action has a long tail legally, but could be pesky.

Two deep-pocketed arrivals into the already overcrowded sports betting sectors are BetESPN and privately held (inevitably public) Fanatics. They launched their sites last month. It is far too early to tell whether either or both can make even a small dent in the estimated $7.62b in revenue the sector is expected to deliver this year.

DKNG is guiding 2023 revenue to reach $3.7b

Flutter is guiding 2023 revenue to reach US$4.7b (EBITDA $180M).

Both SITES expect to be near or over positive EBITDA by at least Q1 2024 or earlier. But both continue to spend heavily on promotions, so we believe the growth in positive EBITDA may be slower than their vibrant, double-digit CAGR gains.

Flutter: Welcome to the NYSE January 29 ^th Flutter! Quick guidance for PDYPY holders, FLTR holders, and prospective buyers

Of all the directional pivots we have seen since our last Seeking Alpha post, the strongest catalyst we see is the NYSE listing. At first glance, it may emit little more than shrugs from some investors. After all, there will be no change in performance as a result. But real-world experience suggests to us that the change in the primary trading post is a serviceable analogy to that very old and very true old saw for real estate: It's all about location, location, location.

There is no better location to trade a stock with a possible triple-digit opening value than the NYSE

The move means an exponential increase in visibility. Trading in USD gives investors a perfect apples-to-apples comparative with all U.S. sports betting platforms. FLTR management has seen enough of a potential upside on a NYSE move to have pursued it for over 2 years at least.

Right now, the London-traded parent is 13% institutionally owned. By U.S. standards, that's virtually non-existent in the institutional universe. Our expectation is that, once analyst coverage arrives soon thereafter calibrated in USD, we will see that percentage at least triple to ~35% to 40%. Retail activity, which provides so much of the propulsive volume on DKNG, is semi-quiescent for FanDuel's parent by comparison.

The endgame guide for current and future holders

PDYPY ADR, London-traded holders

• The sponsors of the U.S.-traded ADRs are Bank of NY, Citi, J.P. Morgan, and Deutsche Bank. Holders must contact them or their brokers to participate in the forced sale of their shares at market. Proceeds will be doled out pro rata to holders.
• Holders of the UK-traded parent will essentially be switching London shares to NYSE shares on a one-for-one basis. Ex: You hold 200 shares of Flutter Entertainment in London, you will receive 200 shares of the NYSE FLUT stock.

Betting on a US-traded FanDuel

NYSE ticker: FLUT

Price: The U.S. entity is expected to start trading in USD linked somewhat to the last transaction in GBX in London.

London's price at writing ~13,000GBX.

This is equal to (at the moment): $163.42 (this reflects the global business, not just FanDuel).

PDYPY price at writing: $82.73.

The apples-to-apples theory of DKNG to Flutter ahead fails because while FLUT is the revenue leader with operating sites spread across 12 countries, DKNG is a U.S.-only site per se.

But a price-only comparison provides an alternate prism:

DKNG at writing: $36.60 with strong sales growth momentum.

Flutter London shares at writing: the equivalent in USD of $163, or 4.5X the DKNG price. So, in theory, if you view both market leaders with equal shares of the U.S. revenue, assume that Mr. Market would value a freestanding FanDuel stock ~ the same as DKNG, i.e., ~$36 a share, you would be valuing FLTR's global business alone at $132 a share based on this morning's London quote.

Our alternate supposition is that U.S. investors already have seen analysts forecasting FTLR PTs anywhere between $100 to $120 going forward.

Consider also that the U.S. market will continue to require considerable promotional spend going forward. Average monthly players last quarter: DKNG 2.2m, Flutter: 2.56m. Both sites showed double-digit gains in AMP in Q3 2023.

We expect the first days of trading volume on FLUT to be heavy, possibly bidding up the shares to near its equivalent UK final price ~$160 USD. By then, we should have analyst calls as to what the final Flutter numbers will be in revenue gains and actual profitable EBITDA.

For now, we have looked at the long-term trading histories of both stocks in order to put a PT on where we think the new FLUT shares would open and get bid to within the first weeks.

Our sense now is that holders of PDYPY ADRs are well guided to put the proceeds of the forced sale to open an initial position in the NYSE issue. We also believe the U.S. shares have a good chance of debuting and trading to $120, which will value it at ~4X DKNG, with much value assigned to the global verticals going forward.

Another useful analogy would be for investors to consider the situation similar to U.S. casino giants like Wynn Resorts, Limited (WYNN). Its Vegas and Boston properties are considerable contributors to overall EBITDA for certain. But we all know the stock mostly trades on good or bad news out of Asia (Macau). In this case, we could see the reverse. U.S. investors will follow the FanDuel portion as the make-or-break valuation producer rather than the global business, which continues formidable.

Either way, watch for the debut, Flutter Entertainment plc shares on the NYSE is going to be a buy.

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