Flutter completes £800m share sale as Q2 revenue grows

28 May 2020

Flutter Entertainment announced plans to accelerate US expansion and reduce debt through an equity placement that raised £812.6m, after revealing a 10% rise in revenue for the first 47 days of its second quarter.

The period in question saw a strong performance from recently acquired Stars Group’s international business, helping offset declines in its Paddy Power Betfair and Sky Bet divisions.

The equity raise took the form of a non-preemptive placing of 8,045,995 new ordinary shares, at a price of €112.42 per share. This represents a 4.7% discount on Flutter's closing share price on 28 May, while the shares sold amount to 5.5% of the company's issued share capital. 

Goldman Sachs International and J&E Davy acted as joint coordinators and book runners for the placing, with the new shares to begin trading on the London Stock Exchange and Euronext Dublin on 2 June.

As part of this agreement, Fox Corporation, which gained the option to acquire an 18.5% stake in Flutter in 2021, following its merger with The Stars Group, has increased its investment in the operator. Fox already held a 4.99% stake in the PokerStars operator, having acquired this stake through May 2019’s Fox Bet joint venture.

Fox Corporation chairman and chief executive Lachlan Murdoch said his business was “bullish” about the opportunities in the online sports betting market.

“Fox Bet has shown strong growth since launching last fall, and we look forward to continuing that success with our partner, Flutter,” Murdoch said. “Fox’s investment in Flutter underscores our confidence in Flutter's business and its management's ability to continue to drive leadership in the US market.”

Despite the uncertainty caused by the pandemic, Flutter chief executive Peter Jackson (pictured) said the business was now “starting to look more directly to the future in terms of planning for growth” through the placement.

“Businesses around the world are navigating through extraordinary change as a result of the Covid-19 pandemic,” Jackson said. “As with many other sectors, in betting and gaming there have been stark impacts as much of the world has gone into lockdown, with some parts of the sector struggling and others thriving as consumers change their purchasing habits,” he said.

He pointed out that the operator had looked after customers and colleagues, enhancing responsible gambling safeguards and not relying on government job protection schemes for staff unable to work.

The trading update for second quarter, to 17 May, released alongside the placement announcement, sees the business release its first figures since the merger with The Stars Group was completed on 5 May.

It reveals a 10% year-on-year rise in the quarter to date, despite the widespread disruption caused by the novel coronavirus (Covid-19) pandemic.

The standout performer in the first 47 days of Q2 was TSG International, the division comprising PokerStars’ international business. This saw revenue rise 92% year-on-year for the period, at a time when the poker vertical is enjoying something of a return to prominence.

Also performing strongly in the period was the US business, comprising FanDuel Group and all US-facing PokerStars and Fox Bet elements, with revenue up 61% from the prior year. Australian revenue, comprising Sportsbet and BetEasy, was up 56%.

Both the US and Australia benefitted from the continuation of horse racing behind closed doors and retail betting outlets being shut, which Flutter said accelerated the migration of retail customers online.

With an accelerated roll-out of betting and gaming legislation in the US expected in the wake of the pandemic, Flutter said the placement would help take advantage of new opportunities as and when they arise.

“Flutter is determined to give its US business the best possible platform for future success and to replicate the leadership position it has achieved in the states that have regulated to date,” it said.

This will see it look to secure additional market access deals in individual states, as well as increasing investment in customer acquisition, supported by the proceeds.

While the gaming-focused and US and Australian businesses performed strongly, the closure of betting shops and suspension of sports as a result of Covid-19 impacted both the Paddy Power Betfair (PPB) and Sky Betting & Gaming divisions.

For PPB, which includes the Paddy Power online, retail and B2B operations, as well as Betfair and Adjarabet, revenue across all channels was down 54%. Online experienced a 41% year-on-year decline, while the closure of the group’s retail premises meant the channel contributed nothing for the period.

The online-only Sky Betting & Gaming, on the other hand, saw revenue fall 28%.

While Flutter said group performance was encouraging, and reflected the strength and breadth of the product offering and geographic footprint, it noted the business still faced significant uncertainty.

This centred around the timing of the resumption of sports, and when this would be televised, as well as the return of retail - and level of customer activity - in its shops. It noted that customer migration online, having been accelerated by nationwide lockdowns, could also effect the retail business.

The operator noted that while poker and gaming had benefitted from the sports shutdown, growth was likely to taper as sports returned. Through the funds raised via the placement, it said, it would be able to ensure it can retain these new online customers acquired during the pandemic. Furthermore, it added, it would then also be able to take opportunities to acquire market share from less diversified competitors.

Finally, it added, the global economic impact of Covid-19 could reduce customer demand as finances became tighter. All this uncertainty made it prudent to facilitate a faster de-leveraging of the company’s balance sheet, leading to interest cost savings and reduced annual cash outgoings. The placement could also reduce its net debt to EBTIDA ratio, it added.

When the merger was completed, Flutter said this ratio stood at 3.5x, but based on projected earnings of £950m for 2020, the ratio could be reduced by 0.9x. Its ultimate target is to reduce the ratio to between 1.0x and 2.0x.