Description

Flutter (ticker: FLUT) – LONG

Current Price: $187

Price Target (2-year time horizon): $450 or +141% return

Mkt Cap $33b / Enterprise Value $39b

Thesis Summary

This is an ideal time to look at FLUT for several reasons:  1) Forced selling pressure ended on 5/30/24.  FLUT relocated its headquarters from London to NYC and as a result the stock was removed from several European based indices.  2) FLUT will be added to several US-based passive indices over this year and next leading to 43m shares in passive index buying.  3) The FanDuel business in the US turned profitable in 2023 and should dramatically improve margins over the next 2 years.  4)  This will lead to excess free cash on an under-levered balance sheet. 5) The stock has been flat for the past 4 years, despite an impressive growth track record and a valuation that is below peers.  I see 141% upside over the next two years and derive comfort from the precedent of several successful stocks after they redomiciled to the US.

Quick Description:  Flutter is a global leader in online sports betting.  Their marquee brand is FanDuel, which was acquired from private equity in July 2018 after the US Supreme Court overturned online gambling laws. They also own various iGaming assets like PokerStars and Junglee Games.  Flutter has leading positions in the UK, Australia, Italy, and the US.  The historical revenue breakdown below shows that this is a global company with strong positions in several key geographies—but they also have numerous opportunities to expand into new geographies and with new products.

In terms of product mix, the sportsbook is ~50% of revenue.  I included the table below, which is a little dated, to demonstrate that several different sports contribute to the results including soccer, horse racing, basketball and, of course, American football.

FanDuel CMD; FY2021 revenue.

Substantial Growth Opportunities

The US market is projected to grow from $9b to $40b over the next 6 years.

Furthermore, Texas, California and Florida have yet to legalize OSB.  In the chart below, blue states are the ones that have already legalized a form of sports betting.   Approximately 50% of the US population does not have access to online sports gambling…yet.

 The International opportunity is even larger.