Flutter Entertainment PLC

Flutter Entertainment PLC (LON: FLTR) is a multinational sports betting, entertainment and gaming business provider.It serves around 7 million active customers in more than 100 countries with 6,000 online transactions per minute. The group employs 9,000 people across over 620 retail shops and 18 offices.

Recent News
16^th March 2020:The group affirmed that postponement and cancellation of sports events due to the lockdown scenario, will have a material impact over the earnings as 78% of its revenue in 2019, was generated through the bets against sports events globally.

Trading Update (for the three months ended 31^st March 2020)

(Source: Trading Update, Company Website)

On 17^th April 2020, the group has reported growth in revenue, which was supported by both sport and gaming segment. The overall group revenue surged 16% to £547 million in Q1 FY20 against Q1 FY19, resulted from an increase of 13% and 25% in Sports revenue and Gaming revenue, respectively. As per the Pre-Mar 15 results, the total revenue was up by 29%, primarily driven by 20% growth in online business amid the challenging market conditions. However, post 16^th March 2020, the trading has been materially impacted. Particularly, revenue in PPB Online was plunged by 32% year on year due to suspension of Irish and UK racing. Regarding the liquidity position, the group had reported net debt of £240 million, with £460 million of undrawn facilitiesand available cash, as at 31st March 2020.

Share Price Performance

Daily Chart as on 17^th April 2020, after the market closed (Source: Thomson Reuters)

Flutter Entertainment’s shares closed trading at GBX 9,018 on 17^th April 2020, up by 15.67% against the last day closing price. Stock's 52 weeks High is GBX 9,532 and Low is GBX 5,004.

Valuation Metrics

(Source: LSE)

As on 31st March 2020, the Price/Earnings and EV/EBITDA multiples of the Flutter Entertainment’s stock were trading at a higher multiple as compared to its peers, but slightly lower from industry (Travel & Leisure) in Price/ Book multiple.

 
From the technical standpoint, 3 days, 9 days and 14 days relative strength index of the stock was unfavourable or overbought, and the price could fall further from the current trading level.

Conclusion
The group has been performing resiliently amid the crisis of Coronavirus outbreak and shown substantial growth in revenue in the first quarter of 2020, especially before 15^th March 2020. However, the cancellation and postponement of global sporting events are materially impacting its betting business. Hence, the disruption is expected in the short run. To weather this challenging situation, the group has a substantial amount of cash reserves and liquidity position as well.

The online gaming market is continuously evolving at a rapid pace and likely to yield ample growth opportunities. Therefore, from a long-term point of view, the group is well-positioned to tap opportunities through acquisitions and product developments. The group has a four-pillar strategy in place for sustainable growth in core markets, enhancing international positioning and rigorously pursuing the opportunities lying in the United States.

Based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 9,018.00 (as on 17^th April 2020), while we look for any upcoming catalysts in the near term.

Hollywood Bowl Group PLC

Hollywood Bowl Group PLC (LON: BOWL) is an FTSE All-share listed company, which operates ten-pin bowling centres in United Kingdom’s (UK) market. The group has 60 bowling centres across the UK and differentiates its portfolio into two centres: Hollywood Bowl (54 centres) and AMF Bowling (6 centres).

Recent News
17th April 2020, the group has proposed placement of 7,500,000 new ordinary shares a price of 145 pence per share with the purpose to raise £10.9 million.

Covid-19 Update (as on 2^nd April 2020)
The group announced the trading statement in lieu of update planned for 9th April 2020.  The company affirmed its decent financial and liquidity position and its actions taken in response to COVID-19. The company had temporarily shut down all its centres on 20th March 2020. It has received the one-year exemption from business rates and the VAT payments deferral released by the Government, representing GBP 6 million of cash savings for the financial year 2020.  The Board has also taken several actions regarding operating and capital expenditures. Influenced by COVID-19 situation, the group has decided to reduce costs and conserve cash for liquidity. However, the Board stay confident in the long-term opportunities of the Hollywood Bowl and will ensure that the company is on track to re-open centres when it is appropriate. On 31st March 2020, the company had around GBP 15.6 million of cash and GBP 30.25 million of debt. Considering the present COVID-19 uncertainty, the lenders have agreed on an extension to the RCF (revolving credit facility) of an additional GBP 10 million. Moreover, the board has suspended the plans for interim dividends.

Share Price Performance

Daily Chart as on 17^th April 2020, after the market closed (Source: Thomson Reuters)

Hollywood Bowl’s shares closed trading at GBX 160 on 17^th April 2020, up by 11.89% against the last day closing price. Stock's 52 weeks High is GBX 312.44 and Low is GBX 70.00.

Valuation Methodology
 


Conclusion
As all the centres of BOWL are currently closed since 20^th March 2020, and there is an indication of lockdown extension, the group is not able to give any guidance for full-year results ending on 30^th September 2020. The company do not believe the impact of Brexit to be material to the business operations. There are more several political and principal risks associated with the business of the company. The adverse economic conditions could affect the business of the company.

On the brighter side, the company had delivered a decent financial performance during the financial year 2019. The company is an ambitious and dynamic business and have a well?thought?out, and proven, long?term capital investment strategy to continue the refurbishment of the estate with a target of 7-10 investments in FY2020. The group also has a plan for the opening of three mini?golf centres and one new bowling centre, that will continue to improve the quality of the portfolio. Moreover, the group currently holds a decent liquidity position.

Based on the above rationale and support from the valuation as done using the above method, we have given a “Watch” recommendation at the closing price of GBX 160.00 (as on 17^th April 2020) while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peer’s information has been taken from Thomson Reuters.

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