Flutter Entertainment enjoys online betting boom but German tax could make market unviable

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Flutter Entertainment PLC (LON:FLTR) said it is enjoying strong momentum but a new tax proposal in Germany is weighing on its outlook.


Berlin is mulling over the introduction of a 5.3% turnover tax on online poker and slots from July 1 this year, which Flutter reckons would “make the German online gaming market commercially unviable for regulated operators”.


READ: Flutter Entertainment hit with US$1.3bn penalty by Kentucky Supreme Court


In fact, the taxes would be “significantly greater than 100% of gross revenue”.


The Paddy Power and Betfair owner said the financial impact will depend on how the potential levy is implemented and “what, if anything, we could do to mitigate the charge”, but it estimated an initial hit of GBP15-25mln this year alone.


Meanwhile, the COVID-19 closures of the UK and Irish estates are costing GBP5mln and GBP4mln each month respectively.


Nonetheless, revenue surged 36% in the six weeks to February 21, with “encouraging” growth in player volumes across all divisions, while sports results have also been “favourable relative to expectations”, particularly in the UK and Ireland.


Regarding the US$1.3bn penalty imposed by Kentucky Supreme Court last December, the FTSE 100 group said it has petitioned for a rehearing and it is “confident that any amount it ultimately becomes liable to pay will be a limited proportion of the reinstated judgement”.


In the year to December 31, revenue rocketed 106% to GBP4.3bn but profit before tax was nearly wiped out, dropping 99% to GBP1mln from GBP136mln in 2019 due to charges relating to The Stars Group acquisition.


Net debt at year-end ballooned 91% to GBP2.8bn after a GBP1.4bn refinancing completed last March, an GBP800mln equity placing last May and the acquisition of Fastball’s 37.2% stake in FanDuel for GBP3.3bn in December. A dividend was not proposed.


“The spectre of much tougher regulation in the UK is also looming over the sector. Flutter has welcomed the government’s gambling review,” analysts at Hargreaves Lansdown commented.


“However, if strict affordability checks to protect problem gamblers are brought in across the board, they could considerably disrupt earnings given that the UK market represents a sizeable chunk of income. But Flutter’s strategy of widening its geographical portfolio should help insulate business if the more radical proposals under consideration become law.”


Shares dipped 2% to 14,035p on Tuesday morning.


–Adds analyst comment, shares–

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