Flutter Entertainment plc
Share price: €127.50
P/E: 76
Dividend yield: Nil
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Don't let the high price to earnings (p/e) ratio and the recently cancelled dividend put you off....it certainly didn't deter Rupert Murdock, one of the shrewdest businessmen in the media and entertainment sector.
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The Murdock family have effective control over Fox Corporation (by owning 39% of the Class B shares ... the Class A shares have limited voting rights) and it increased its stake in Flutter to 5% following a $1 billion placing of shares by the latter in May.
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Flutter, from humble beginnings as an Irish bookmaker called Paddy Power, is attempting to launch a business in the US. Sports betting had been banned in the US since an Act prohibiting it was passed in 1992, with some exceptions such as Las Vegas in Nevada. However, a landmark decision by the US Supreme Court in 2018, clears the way to allow legal sports gambling, and most states are in the process of changing their laws to allow it within their borders.
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Flutter's first move, with a view to tackling the new US gambling market, was the acquisition of a controlling stake in New York based fantasy sports operator, Fanduel, in 2018. Fantasy sports allow sports fans to bet against each other on match and competition outcomes, and this activity was a legal grey area until the 2018 Supreme Court ruling. Flutter's next move was a merger with the Toronto based The Stars Group (TSG) which is also engaged in fantasy sports, and gaming such as on-line poker. This merger was completed in May 2020.
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Fox Corporation acquired 4.99% of TSG in May 2019 for $236 million, and it also launched its own sports betting platform called Fox Bet.
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It is interesting to note that Fox Corporation brought its stake in Flutter back up to 5%, by buying shares in the recent $1 billion placing at around €114 per share, following Flutter's completion of its merger with TSG.
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Fox is one of the biggest sports broadcasters in the US, so the retention of a 5% stake in Flutter, following the TSG merger, indicates that the Murdoch family rates Flutter as a good contender and partner to break into the newly created US gambling market.
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Murdock and family has of course, no pun intended, hedged it bets by also setting up its own betting service, Fox Bet. No doubt they will investigate other options also, so that they are not overly reliant on this and on the investment in Flutter. However, the most likely outcome in a market as huge and diverse as the US, is that there will be growth opportunities for many gambling companies, not just one or two.
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A review of the valuation metrics indicates that Flutter shares, while not cheap, are reasonably priced in light of this huge new growth opportunity. The calculation of the current price to earnings ratio, and other fundamental indicators, is complicated by the recent merger and acquisition activity and for my calculations of same - CLICK HERE.
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The Irish company with the greatest potential for growth in the next few years, is likely to be Flutter Entertainment, due to the opening up of a new and enormous market in the US. This stock therefore merits inclusion in a diversified portfolio of growth stocks.