The recently announced merger between gambling powerhouses Flutter Entertainment (formerly Paddy Power Betfair) and The Stars Group has a “high chance” of being completed and an “unparalleled opportunity” for share price upside, according to analysts at Canadian bank RBC.
In a recent note discussing big- and mid-cap gambling companies, the financial firm handed out an ‘outperform’ rating and a 9,000p target price to Flutter, which is set to control the combined entity.
RBC analysts said that there is a “high chance of the deal completing” and that the merger will create “a huge revenue opportunity from cross-selling” between Flutter’s sports betting business and The Stars Group’s online poker customer base.
It emerged early this month that Flutter and The Stars Group have agreed to merge their operations in a deal that will create the world’s largest online gambling operator with presence in multiple key markets, a portfolio of leading brands, including Paddy Power, Betfair, Sky Betting & Gaming, and PokerStars, combined revenue of £3.8 billion, based on 2018 pro forma figures, and total market capitalization of more than £10 billion.
The enlarged business will be headquartered in Dublin where Flutter’s flagship brand Paddy Power has been based since it was founded in 1988. Flutter will hold a 54.6% stake in the combined group, while The Stars Group will own the remaining 45.4%.
The deal is subject to regulatory approval and other closing conditions and many suggested that competition authorities could force the two companies to sell some of their brands in order to pass scrutiny.
Flutter Biggest Opportunity, GVC Top Pick
As mentioned earlier, RBC gave Flutter’s to-be-enlarged business an ‘outperform’ rating, but said that Isle of Man-based multi-brand gambling operator GVC Holdings was its “top pick” among all UK gambling companies it reviewed.
The Canadian bank initiated the owner of popular brands such as Ladbrokes Coral, bwin, and partypoker at ‘outperform’ with a 1,060p price target.
RBC analysts said that GVC has “consistently outperformed peers in the growth of its online business” that was supported by well-integrated acquisitions and a proprietary tech platform. GVC purchased British bookmaker Ladbrokes Coral in 2018 and online gambling group bwin.party Digital Entertainment in 2016 as part of its long-term growth strategy.
The two deals created an FTSE 250 gambling powerhouse that is now aggressively pursuing expansion across the lucrative US sports betting field.
RBC analysts pointed out that GVC had an “excellent track record of integrated acquisitions” and that the company offered “excellent value”, despite the stock sell-off that occurred earlier this year.
In March, GVC CEO Kenny Alexander slashed his personal stake in the gambling operator, selling £13.7 million worth of stock. Investors interpreted his actions as diminished confidence in the company’s future, which led to shares plunging more than 18% on news of Mr. Alexander offloading stock. The executive has since then bought £5 million worth of company shares to placate investors.
William Hill was the only British gambling company not to receive an ‘outperform’ rating by RBC analysts. The Canadian bank said in its note that the operator had been “outplayed in a consolidating market” and was “the smallest group, with the fewest brands, having been left behind in a consolidating industry where scale really does matter.”
William Hill was handed out a ‘sector perform’ rating an a target price of 220p. While most of the major gambling companies have been combining their businesses to create larger groups, the consolidation wave has only nibbled at William Hill’s toes over the past few years.
However, RBC analysts said that the US sports betting market could be a significant opportunity for the British bookmaker through its deal with Nevada-based casino operator Eldorado Resorts. William Hill could benefit even more from that deal as Eldorado prepares to merge with another US casino powerhouse, Caesars Entertainment Corp., RBC’s note read further.
Source: Flutter merger with Stars Group offers “unparalleled opportunity” says RBC, however GVC remains top pick in gambling sector, ProactiveInvestors.co.uk
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