September 17, 2024 08:24 GMT
Flutter (FLTR 29s; Ba1/BBB- Pos/BBB) buys Playtech's Italian consumer business for €2.3b
CONSUMER CYCLICALS
Financials;
- €2.3b cash acquisition and indicative it is financing through resources on hand.
- On FY24 EBITDA guidance of $2.51b (+34%yoy), it was gross 2.9x/2.3x levered - note it reports leverage lower/ex. $500m in leases. Pro-forma including Friday's $350m Brazilian bolt-on and assuming a $1b draw-down on current $1.5b cash on hand we see gross/net moving to 3.3x/3.1x. Adjusting out leases it's eqv. to company reported net 2.9x. It ended June at net 2.6x for reference.
- It has reaffirmed target net 2-2.5x today and says "we expect leverage to increase but then reduce rapidly given the highly visible profitable growth opportunities that exist across the Group."
Ratings/RV;
- We have doubts if it takes its leverage target seriously. It moved it from 1-2x to 2-2.5x in March "to reflect Group earnings and cashflow potential". That was after spending 2 years in the 3-handle. It's not necessarily a negative for company fundamentals - its moving on unregulated markets (Brazil) and continuing to tap into slow online penetration in Italy with above.
- We expect Moody's to stay in HY for now, S&P to stay on BBB- Pos. and Fitch on BBB Stable on the €29s. Note S&P and Fitch notch +1 from the issuer rating for the secured - Moody's does not. We are biased to see value in the 29s (working out to 3.5yrs) at 4.2%/OAS+170 but please note the strong potential supply overhang (across $ and €).
On target;
- It says acquired Snai has a 9.9% online market share in Italy with online revenue CAGR'ing at 26% and adj. EBITDA at 32% for the last four years.
- Flutter's online share will move to 30% and will be the largest in the country. It sees this as key given online penetration in Italy is still a low 21% (vs. UK and Australia >60%). It sees growth of ~10% over next 3 years.
- Targeting cost synergies of €70m to be achieved within 3 years; 10% in Y1, 50% in Y2. Cost to achieve synergies 1.25x. Revenue synergies also expected.
- It points to history of bolt-on growth (Sisal and Tombola CAGR'd 17% and 19% for 2 yrs post acquisition - both online players, Sisal in Italy).
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