Integration Of Kindred And Sportsbook Rollout Will Yield Cost Savings

Key Takeaways

• Integration of Kindred is expected to yield significant cost optimizations and enhance net margins, potentially improving financial performance.
  
• Strategic initiatives, including the new sportsbook rollout and omnichannel development, aim to drive revenue growth and improve customer engagement and market differentiation.
  
• Increased taxation and regulatory challenges coupled with integration costs from acquiring Kindred threaten FDJ United's revenue growth and profitability across several markets.

Catalysts

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

• The acquisition of Kindred and the integration into FDJ United is expected to provide significant synergies and cost optimizations, projected to bring in more than €50 million of additional savings, which will enhance net margins over the next two years.
  
• The strategic rollout of the new sportsbook platform (KSP) across several markets is anticipated to offer marketing differentiation and improve efficiencies, which should positively impact revenue growth and EBITDA margins starting in late 2025.
  
• The development and implementation of an omnichannel account in the French lottery and retail sports betting sectors are expected to increase customer engagement and potentially revenue growth, especially with the projected increase in digital sales growth.
  
• Continued investment in developing responsible gaming tools and compliance measures should bolster the company's reputation, potentially increasing market share and sustainable revenue growth.
  
• Expanding into new markets and the increased focus on international segments, backed by strong brands and technological expertise, contributes favorably to the revenue potential and financial strength for future years.

FDJ United Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FDJ United's revenue will grow by 10.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.0% today to 12.1% in 3 years time.
• Analysts expect earnings to reach €500.6 million (and earnings per share of €2.41) by about May 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 16.9x on those 2028 earnings, up from 15.0x today. This future PE is greater than the current PE for the FR Hospitality industry at 12.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

FDJ United Future Earnings Per Share Growth

Risks

• The increased taxation in France and the Netherlands has a significant impact on gross revenue, resulting in a direct negative effect on EBITDA by approximately €60 million. This taxation increases operating costs and reduces margins.
  
• The tightened regulations in the Netherlands and the United Kingdom are expected to reduce revenue growth in these markets by approximately €30-40 million, impacting overall profitability.
  
• The acquisition of Kindred has led to increased financial burdens, such as interest expenses and debt, impacting net earnings due to the cost of servicing €1.8 billion in net financial debt.
  
• The integration of Kindred into FDJ United requires substantial resources, with an uncertain realization of projected synergies and cost optimizations of €50 million, potentially affecting operating margins if delayed or underachieved.
  
• The company's vulnerability to regulatory compliance and market competition across diverse markets may constrain revenue growth, challenging their strategic expansion plans, which could negatively impact earnings projections.

Valuation

• The analysts have a consensus price target of €36.422 for FDJ United 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 €27.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.1 billion, earnings will come to €500.6 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of €32.36, the analyst price target of €36.42 is 11.2% 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.