Flutter’s US losses aren’t a reason to worry and Wetherspoon’s debt comes into focus

“Investors will be pleased to have seen a second day of modest gains for the FTSE 100 after Monday’s blowout performance on a potential vaccine breakthrough. Slow and steady wins the race,” says AJ Bell Investment Director Russ Mould.

“This suggests the market is not in such a volatile place that any little development might lead to huge swings in either direction. The yield on 30-year UK Government bonds moving above 1% is another sign of improved sentiment as investors move out of safe havens.

“New rules aimed at preventing foreign takeovers for certain sectors may put some short-term pressure on share prices as it removes a potential catalyst for UK stocks but longer term it is probably good news for shareholders if it prevents overseas firms snapping up UK firms at depressed levels.”

Flutter Entertainment

“One of the weakest parts of Flutter Entertainment financially is the strongest part strategically. The US arm could be a game-changer in terms of future growth for the business and so one might excuse it for incurring wider losses in this geographic region.

“It has the market leading position in the US with 46% online sportsbook market share and total online share of 29%. The company says it is on track to generate more than $1.1 billion of gross gaming revenue in the US this year.

“The growth opportunity is down to the Professional and Amateur Sports Protection Act of 1992 being overturned two years ago, allowing sports betting in the US. Some experts have estimated the market could be worth between $30 billion and $35 billion. More states continue to legalise and at a rapid pace, meaning Flutter must spend a lot of money establishing itself as a key player in these districts.

“Flutter has one of the best footprints in the US and over the coming years the division should become an important contributor to profits.

“The company’s US division consists of operations inherited from the recent acquisition of Stars Group, a 58% stake in the largest US fantasy sports betting operation FanDuel, TVG (Television Games Network) which is the number one horse and greyhound racing operator, and Foxbet which is an online and mobile sports betting business.

“FanDuel is of particular importance where it lets customers create fantasy teams made up of real players from professional sport and play against other users. That’s one of the fastest growing parts of the gambling market in the US and it is now making waves in Europe. Flutter was clever to spot this opportunity by taking a controlling stake in FanDuel two years ago.”

JD Wetherspoon

“The debate continues about the effectiveness of the 10pm curfew introduced for pubs earlier this autumn but what is not in question is the impact it had on the trade as the latest update from JD Wetherspoon demonstrates.

“This measure and the increasingly strict restrictions imposed in the run up to the new lockdown at the beginning of November put significant pressure on sales.

“Like the rest of the industry the company will be crossing everything that the Government calls time on lockdown 2.0 on 2 December and that the positive early signs on a vaccine enable the desired return to normality.

“Chairman Tim Martin’s observation that temporary restrictions sometimes prove lasting ones will provoke wry smiles from industry veterans, as he noted that afternoon closing introduced in the First World War lasted until the mid-1980s.

“With relatively deep pockets, the firm has a good chance of surviving a period of depressed trade – certainly better than a lot of its peer group. In this sense it is likely to see a market share benefit if other venues disappear.

“However, debt levels are quite high and addressing this may become an increasing priority for the business.

“In this context, it will be interesting to see if Wetherspoons calls last orders on more of its own sites in an effort to become a more streamlined operation. This would run counter to an historic strategy of chasing volume over margins.”

These articles are for information purposes only and are not a personal recommendation or advice.