Is it worth investing in Flutter right now? What to buy, sell or avoid

Since Flutter Entertainment, the betting behemoth, bought its American peer FanDuel in 2018, all eyes have been on the United States. In the six years since, US revenues have grown from £191 million (worth $250 million at current exchange rates) to $4.4 billion, accounting for just under 40 per cent of total sales. Growth expectations are increasing as more US states relax betting laws, so are Flutter shares still worth a punt?
Investors have flocked to Flutter since 2018 when a US Supreme Court judgment struck down an act banning sports betting everywhere except Nevada. The decision now falls to state legislators, and the market is coming to life — sports bets are legal in 38 states.
Flutter, once known as Paddy Power Betfair, has committed to this American dream, even moving its primary listing from London to New York earlier this year. As such it lost its membership of the FTSE 100 index, although it still has a dual listing in London.
A deeper presence in the US looks justified: the company told investors last month it expects adjusted core profit to hit more than $5 billion in 2027, compared with this year’s estimate of $2.5 billion. The US business will account for nearly half of these profits, generating about $2.4 billion of adjusted core profit that year.
Flutter has a solid footing in this highly competitive sector. FanDuel has a market share of around 35 per cent, followed by DraftKings at roughly 32 per cent. Growth is still coming in hot: in the US the average number of monthly players rose by 27 per cent in the second quarter of the year. That is not just from states that have legalised sports betting recently — pre-2020 states notched revenue growth of 27 per cent in the period. Pre-2022 states were up 33 per cent, and 2022 and 2023 states were up by 45 per cent.
That being said, the US market does not come without risk: the Disney-owned sports network ESPN entered the market last year. Some states, such as Illinois, are introducing higher taxes on sports betting, which has prompted some companies to introduce a surcharge for winners.
But Flutter’s growth elsewhere is also strong. The UK and Ireland, its second biggest market by revenue, grew by 18 per cent in the second quarter, thanks partly to a boost from the Euro football championships. Last month the group agreed to buy the Italian consumer betting wing Snaitech from its rival Playtech for €2.3 billion, and a 56 per cent stake in one of the biggest gambling companies in Brazil, NSX Group.
Investors should, however, keep an eye on the group’s balance sheet, especially as merger and acquisition activity in the sector begins to take off. Net debt rose by $317 million to $5.8 billion at the end of the second quarter and leverage — which measures net debt relative to adjusted cash profits —stood at 2.6 times, ahead of the board’s medium-term target range of 2 to 2.5 times.
Shareholders can take confidence in Flutter recently upgrading its guidance for the full year, with forecasts of US revenue at between $6.05 billion and $6.5 billion, up from previous guidance of $5.8 billion to $6.2 billion. Flutter told shareholders at an investor day last month that it had made plans for a new share buyback programme of up to $5 billion by 2027, which is expected to launch after the third-quarter earnings report in November.
There is much to like about Flutter’s growth story, and the market knows it. The shares trade at 40 times expected earnings, compared with the likes of Playtech and Entain, which trade at multiples of 14 and 29. This is certainly not cheap, although it fairly reflects the value of an industry leader in a rapidly growing market. Advice Hold Why Valuation reflects strong growth story in the US
The £596 million Baillie Gifford US Growth fund owns some of the most exciting growth names on the market, including Nvidia, Amazon and Netflix. Yet the fund’s recent performance has been uninspiring.
The FTSE 250 fund invests in listed and unlisted American companies which the managers believe can grow much faster than average. Its biggest single holding in the portfolio was Space Exploration Technologies as of the end of August. The business, which is another brainchild of Elon Musk, made up 7.8 per cent of the portfolio. This was followed by technology companies The Trade Desk at 5.3 per cent, Amazon at 4.9 per cent and Nvidia at 4.7 per cent.
Just under 30 per cent of the portfolio is invested in the technology sector, although the fund is invested in other industries too — 19 per cent is in consumer discretionary businesses, for example, and 10.5 per cent is in healthcare.
But recent returns have been disappointing. The net asset value total return for the financial year ended in May was 16.2 per cent, well behind the S&P 500’s total return of 24.8 per cent. Indeed half of the NAV total return came from just two stocks — Nvidia and SpaceX — according to Investec, and more than half of the quoted part of the portfolio at the start of the year did not produce a positive return.
Shares in the trust still trade at a double-digit discount, although this is slowly starting to close. The shares stood 11.6 per cent lower than NAV on Tuesday, compared with a 12-month average of 13.9 per cent.
This may be because of a wider uplift in sentiment towards growth investments, although other investment trusts that specialise in North America trade at an average 25.2 per cent discount. Baillie Gifford US Growth’s exposure to unquoted companies means it looks riskier than some peers, although it may suit investors who are looking for meaningful diversification from the main market. So far however, these holdings, excluding SpaceX, have been a drag on returns. Advice Hold Why Mixed performance but narrowing discount
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