In a gambling world where the big prize is global scale and a formidable foothold in America, Flutter Entertainment might just have put itself in a position to be able to climb on to the podium to receive it.
In one fell swoop at the start of this month the company lined itself up to be the world’s biggest online betting and gaming group by agreeing an all-share combination with the Canadian player Stars Group that valued the enlarged entity at £14.2 billion, including debt.
The deal gives Flutter Entertainment’s investors majority ownership of a new gaming force in areas from poker to sports betting that should comfortably generate annual revenues of at least £3.8 billion and provide streamlining cost-saving opportunities worth a good £140 million a year.
Crucially, the merger gives the new group a 25 per cent share of the US sports betting market, with plenty of opportunities to cross-sell to each company’s customers. On the face of it, there seems little not to like.
Flutter Entertainment is the new name for Paddy Power Betfair, a gaming and betting group that was formed through a series of mergers and acquisitions, most recently through the combination in 2016 of the Dublin-based firm Paddy Power and Betfair, which began life as a betting exchange.
The group operates numerous brands, including Sportsbet in the online betting market in Australia and Fanduel in daily fantasy sports in the US. Flutter Entertainment operates four divisions: online, which is the largest, Australia, the US and Retail, which runs 626 Paddy Power betting shops in the UK and Ireland. The planned acquisition of Stars Group, which used to be known as the Amaya Gaming Group and bought Sky Betting & Gaming in Britain for $4.7 billion last year, is clearly transformative, putting it in a stronger position to make serious inroads into the liberalising US market. It also consolidates its standing in the Australian market, where Stars Group acquired the local business owned by William Hill last year for $234 million.
There is more of a question mark over the implications for the proposed merger in the UK, though, where the new group would assume a 36 per cent share of the market for online gambling and may well have to auction off a business or two to win approval from the competition regulator. Even with a smaller new market share, owning Stars Group will still improve Flutter’s odds in sports betting given that the government’s crackdown on maximum stakes for fixed-odds betting terminals has severely shrunk that part of its market.
It’s hard to argue that Flutter Entertainment had to do this deal in order to survive. The group’s most recent set of results, for the six months to the end of June, show strong growth in revenues in each of the divisions, except the retail arm, where both turnover and underlying profits fell as a result of the clampdown on problem gambling.
In an illustration of how regulators in many of the world’s markets are tightening their squeeze on online gaming and gambling, new or higher taxes in countries including Australia, Ireland, Sweden and Italy depressed Flutter Entertainment’s underlying profit before tax and other items.
Flutter’s shares climbed almost 7 per cent on the day the the Stars Group merger was disclosed, although they have since fallen back as shareholders await reaction from various regulators.
The stock, down 70p, or 0.9 per cent, to £74.70 yesterday, trades for about 23.3 times Morgan Stanley’s forecast earnings and yields just under 2.7 per cent. One to sit on as the merger and consequences unfold.
ADVICE Hold
WHY Fairly valued gaming growth stock with plenty of opportunities but also some regulatory pressure
Ashmore Group
Whichever way you look at it, emerging markets are risky: politically, economically and financially. The trick from an investor’s point of view is to buy or sell the right asset in the right region at the right time; blanket exposure is always going to be a disaster. Obvious investment alchemy perhaps, but it’s something that Ashmore Group has been rather good at over the years.
Among its most recent, often counterintuitive, investment moves has been to dive into Argentinian sovereign debt when other investors have been selling out on heightened fears that the country may default on its repayment obligations. Only time will tell whether Ashmore has been wily or gets burnt, though history would suggest it’s the former.
Ashmore is a specialist investor in the emerging markets and was founded in 1992 by Mark Coombs, now 59, a highly regarded expert in the sector. It manages just under $92 billion of assets on behalf of professional and individual savers and investors, taking positions across about 80 countries using a wide variety of products from equity and debts to currencies and pooled funds. Mr Coombs, who is chief executive, believes there is a shift in favour of emerging markets as investors that have traditionally underplayed the sector reallocate their assets in search of higher returns. He also argues that central banks and funds in emerging markets are increasingly investing in their own regions and currencies rather than outside.
That heightened level of interest could explain why Ashmore has enjoyed 11 successive quarters of positive net inflows of funds. That, perhaps, and an investment track record that means that 90 per cent of its funds have outperformed their benchmarks over one year, rising to 97 per cent when taken over three and five years. Ashmore’s diverse assets and active style help to shield it from macroeconomic blow-ups, though not from wholesale shifts in investor sentiment.
The shares, flat at 490p yesterday, change hands for about 17.3 times Shore Capital’s forecast earnings for a prospective dividend yield of more than 3.6 per cent. Only for those in it for the longer term.
ADVICE Buy
WHY High quality investment manager that generates good value over time
