Kindred Integration Will Diversify Markets And Strengthen Future Operations

Key Takeaways

• Diversification through acquisitions and platform enhancements could boost FDJ's market presence and improve revenue and margins across Europe.
  
• Legal resolution and operational optimizations promise greater earnings stability, enhancing investor confidence and financial performance.
  
• Rising financial leverage and regulatory challenges could impact revenue growth, EBITDA, and net margins, despite expansion and competitive pressures.

Catalysts

Engages in the gaming operation and distribution business in France and internationally.

• The acquisition of Kindred and the integration into FDJ United will diversify and expand the company's geographic and digital presence, potentially boosting future revenue and market share across multiple regulated European markets.
  
• The strategic implementation of the KSP sportsbook platform will enhance operational efficiency and differentiation, leading to cost savings and potentially improving net margins.
  
• The omnichannel account initiative, FDJ & Moi, aims to synergize online and retail experiences, which could increase customer engagement and drive revenue growth through better understanding of customer behavior.
  
• The resolution of the European Commission's investigation removes legal uncertainties and strengthens the company's operational framework, potentially improving earnings stability and investor confidence.
  
• Identified cost synergies and operational optimizations, such as those in IT and marketing, particularly the additional €50 million from Kindred integration, could result in improved net margins as these are realized over the next two years.

La Française des Jeux Société anonyme Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming La Française des Jeux Société anonyme's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.0% today to 12.0% in 3 years time.
• Analysts expect earnings to reach €510.0 million (and earnings per share of €2.49) by about March 2028, up from €398.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €614 million in earnings, and the most bearish expecting €308 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, up from 15.3x today. This future PE is greater than the current PE for the FR Hospitality industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

La Française des Jeux Société anonyme Future Earnings Per Share Growth

Risks

• The integration of Kindred has resulted in a significant increase in net financial debt, now at €1.818 billion, increasing financial leverage and potentially impacting net margins due to higher interest obligations.
  
• The implementation of new regulations in the Netherlands and the U.K. could negatively impact revenue growth and EBITDA, with a projected cumulative negative financial impact of around €90 million, despite mitigation efforts.
  
• The French lottery and sports betting BU faces tax increases that will have a financial impact, potentially eroding net income by €45 million in 2025, thus impacting net margins.
  
• Uncertainties and challenges in international market regulations could hinder revenue growth and profitability, especially in the Netherlands and U.K., affecting overall earnings sustainability.
  
• Despite expansion and synergies, competitive pressures and high marketing costs (up by 36%) tied to both domestic and international operations could compress EBITDA margins and challenge revenue retention.

Valuation

• The analysts have a consensus price target of €39.622 for La Française des Jeux Société anonyme based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €47.0, and the most bearish reporting a price target of just €30.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.2 billion, earnings will come to €510.0 million, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of €33.0, the analyst price target of €39.62 is 16.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.