Jefferies has run the numbers on Flutter Entertainment PLC (LSE:FLTR) to reach a conclusion that many investors will have already suspected – the FanDuel US sports betting business is not being valued properly in London.
A spin-off and a US IPO was mooted but delayed with the departure of the American unit’s CEO earlier this year, and, Jefferies said last month’s appointment of Amy Howe as the new FanDuel boss may mean that the IPO may come sooner rather than later.
“With FanDuel’s leading US market share, we argue that FanDuel would trade at a premium to its closest US peer,” Jefferies analyst James Wheatcroft said.
Jefferies sum-of-the-parts (SOTP) valuation sees Flutter’s US business – comprising FanDuel and FOXBet – at GBP17.99bn.
The broker’s SOTP put Flutter’s total valuation at GBP37.59bn, versus the bookie’s current GBP20.68bn market capitalisation at the current share price of 11,860p.
Wheatcroft, meanwhile, ascribes some GBP10.96bn to Flutter’s online business in the UK and Ireland along with GBP298mln for the group’s betting shops in the region. He sees Flutter’s Australian unit to be worth GBP6.5bn and international operations are valued at GBP3.34bn. Altogether the SOTP valuation informs Jefferies view that suggests some 60% upside.
Jefferies has a ‘buy’ recommendation and a punchy 19,300p price target, yet sees the share price potentially as high as 22,800p in an ‘upside case’.
“Flutter’s weak share price does not reflect the underlying performance of the business, nor the embedded value, in our view,” the analyst said in a note. “Modest short-term regulatory and sports margin-related downgrades distract from the bigger picture: Flutter is online market leader in the UK, Australia, and the US.
“US growth is accelerating and FanDuel retains US leadership.”