Wed, Feb 12, 2020
The bank’s analysts raised its target price on U.K.-listed trio Flutter Entertainment, formerly Paddy Power Betfair, William Hill and Ladbrokes Coral owner GVC, which they said could double group profits in five years. The valuations assume Flutter has a 20% market share, with William Hill and GVC both having a 10% market share.
Jefferies predicted gross gaming yield of $19 billion from the U.S. market by 2023 - equivalent to a $5 billion Ebitda opportunity.
It comes as an increasing number of states legalize sports betting following a Supreme Court ruling in May 2018 striking down a ban on state-authorized gambling on football, basketball, baseball, and ice hockey.
Jefferies said 20 U.S. states have so far legalized sports betting, with 14 taking bets so far, which was “more quickly than we originally anticipated.”
The rapid growth in New Jersey, the first new state to legalize since the ruling, is another reason for the Jefferies upgrade. Since the first bet in June 2018, more than $5.8 billion worth of wagers have been placed in New Jersey.
“We upgrade our estimates for the U.S. sports betting markets and see a $5 billion Ebitda opportunity. Current valuations of Flutter, GVC and William Hill do not attribute any material value for the U.S., in our view, despite scope for the U.S. to double group profits in five years,” Jefferies analysts, led by James Wheatcroft said in a note.
Flutter, the market leader in New Jersey following its acquisition of FanDuel and Fox Bet, agreed to buy Canadian online gaming company The Stars Group last year to create the world’s largest online betting operator.
Jefferies said the company “stands out” in the sector was poised to replicate its New Jersey success in other states and raised its target price from 9,500p to 13,500p - a 57% upside from the current price.
William Hill, which struck a deal with CBS Sports earlier this week allowing it access to the media giant’s audience, is also well-positioned, according to Jefferies, which raised the stock’s target price from 210p to 400p, a 111% upside.
The company has also partnered with casino operator Eldorado Resorts, which has since taken over Caesars Entertainment.
“William Hill is well-placed in the U.S., with a demonstrable track record and extensive agreed market access (which could grow materially if/when Eldorado acquires Caesars),” Wheatcroft said in the note.
GVC, which has a 50/50 joint venture - ROAR Digital - with U.S. casino giant MGM Resorts, also gets a target price upgrade from 1,100p to 1,500p - a 63% upside. After a “slow start” ROAR had an 8% market share in New Jersey as of December and the company has targeted 15% by the end of March, Jefferies said.