HSBC Analyst Thomas believes Flutter’s stock punishment is too harsh

Posted on: November 27, 2023, 11:13h. 

Last updated on: November 27, 2023, 11:13h.

Shares of Flutter Entertainment (OTC: PDYPY) are up 13.77% year-to-date, but over the past six months, the gaming equity has entered a bear market. At least one analyst argued that repudiation is overdone and positive catalysts lie ahead for the stock.

FanDuel Flutter
Flutter CEO Peter Jackson. An analyst said the stock selloff is overdone and that the shares could soon rally. (Image: The Independent)

In a note to clients today, HSBC analyst Joseph Thomas reiterated a “buy” rating on the FanDuel parent with a price target that implies upside of 25% from current levels. Thomas pointed out that Flutter is attractively valued trading at an estimated 16x 2025 enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and with a free cash flow yield of 7%.

That doesn’t strike us as being expensive for a group that can continue to deliver good growth as it absorbs some of the one-off issues,” observed Thomas.

Those one-off issues include softness in Australia, foreign currency headwinds, good luck for bettors in the third quarter and some regulatory and tax issues in the UK. Flutter rivals have also been pinched by softness in Australia and UK regulatory hurdles.

US Catalysts Abound for Flutter Stock

Flutter, the world’s largest online gaming company, is based in Dublin and is one of the dominant operators in the UK and European wagering scenes. However, in recent years, it’s become more of a US story by way of its 95% ownership of FanDuel.

Along with DraftKings (NASDAQ: DKNG), FanDuel is part of a de facto duopoly in the US online sports betting market and is a rising force in the iGaming space in this country. At the end of the third quarter, FanDuel had a 40% share of the U.S. online sports wagering market, down from 42% a  year earlier. But its iGaming share increased to 23% from 19%. Flutter is seizing on that momentum, planning a share listing on the New York Stock Exchange (NYSE) in the first quarter of 2024.

That’s not new news, but HSBC’s Thomas pointed out that most of Flutter’s enterprise value is currently attributable to the operator’s US arm, which is delivering more rapid growth than the other markets in which the company does business.

Crucially, FanDuel is on pace for annual profitability this year, meaning it will become the first US internet sportsbook operator to achieve that feat. Thomas added that FanDuel simply meeting previously disclosed forecasts could provide a spark for Flutter stock.

Flutter US IPO Could Prove Meaningful

While Flutter’s plans to list in New York are about 10 months in the making, confirming the news has been widely available to the investing public, the move could still prove potent for the stock.

Currently, Flutter’s shares trade in the US on an over-the-counter basis, which limits the ability of fund managers to buy the stock. Likewise, many retail investors eschew names that don’t trade on major exchanges.

Said another way, the NYSE listing could significantly broaden the audience for Flutter stock while making it easier for the operator to efficiently raise capital, if needed.


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