I wonder whether it will achieve these levels again?

History

Flutter Entertainment was created in 2016 by the merger of Paddy Power and Betfair. Since then, it has grown through acquisition, buying gambling companies in Canada, Georgia and Italy. To diversify, it has also acquired a US fantasy sports operator, and an online bingo website and app.

This period of expansion has seen sales increase by £4.3bn in four years.

Although most of its £6bn revenue in 2021 was generated online, Flutter Entertainment still operates 600 shops on the high street.

Growing markets

According to Technavio, a market research company, the world’s gambling market will be worth $565bn by 2025, an increase of $220bn in five years. This excludes the online gaming market, which Acumen believes could be worth $132bn by 2030.

That’s all good news for the “world’s leading online sports betting and gaming operator“.

FIFA said that bookmakers took $155bn during the 2018 World Cup. This year’s tournament which, ironically, is to be held in Qatar (one of the few countries in the world where gambling is illegal), is expected to beat that figure.

Flutter Entertainment should therefore be one of the winners from this year’s competition.

Half-year results

Investors liked the half-year results that were released in August, with the share price soaring 14% on the day.

The company disclosed an 11% year on year growth in revenue, and an increase in its average monthly number of customers to 8.7m.

Interest rates

However, spending on gambling and gaming is discretionary.

A backdrop of rising interest rates, which adversely impacts on the disposable incomes of customers, is not good news for the company.

Flutter Entertainment is also exposed to rising borrowing costs, through its relatively high level of debt. Borrowings were £62m at the end of 2017 but, four years later, had increased to £3.8bn. This is to be expected, given that a large proportion of its acquisitions have been funded by debt.

The company currently has a gearing ratio of 4.1 times EBITDA (earnings before interest, tax, depreciation and amortisation). This compares to its medium-term target of one-to-two times. Achieving this milestone is important because, at this point, the company has committed to reviewing its dividend policy.

A dividend was last paid in October 2019.

When the company released its results during the first week of August, a downturn in spending by its customers hadn’t been seen. But since then, central banks around the world have been raising interest rates.

What have I concluded?

At the moment, I feel it’s too much of a gamble for me to invest in Flutter Entertainment.

Although the markets in which it operates are growing rapidly, I fear that the coming economic headwinds and rising interest rates will dent its revenues.

I also like to own shares in companies that pay a dividend.

I’m therefore going to keep the company on my watchlist and review the situation in the new year.

Who knows, perhaps by then England will have won the World Cup. But then again, I wouldn’t bet on that either.

The global business environment has changed considerably since 2020. While some previously prominent industries are looking at a decade of laboured recovery, several new and exciting areas have emerged. 

I’m looking for a firm operating in a growing sector with a global footprint, stable business model and steady growth. And only one share from my FTSE 100 watchlist looks like a solid option to me. 

A big FTSE 100 bet? 

Flutter Entertainment (LSE: FLTR) is a sports betting and online gambling company that operates famous brands like Sky Betting & Gaming, PokerStars and Sportsbet. The firm was formed by merging two British giants — Paddy Power and Betfair.

After recently released first-quarter results, its share price has jumped over 42%. Here’s why I’m still considering an investment at its higher price. 

During the pandemic, there was a boom in online betting activity. In the US, the monthly average sports betting amount across the country was $310m. Across 2021, the value was estimated at over $7bn a month. This 20x increase was because several states in the US legalised sports betting after 2018.

Another big factor has been the rise of mobile payments. In fact, mobile sports betting account for 84% of all transactions in the region. 

Flutter Entertainment benefited as a result. In 2021, group revenue grew 37% to £6.03bn. Across its brands, average monthly players exceeded 7m for the first time. The FTSE 100 firm also acquired several smaller betting brands across the globe.

The UK and Ireland remain Flutter’s biggest markets, accounting for 33% of total revenue. While mobile phone betting figures are lower here, offline stores still receive a lot of foot traffic. And Flutter Entertainment remains the biggest betting firm in the region. 

My concerns

There’s no doubt that online sports betting and gambling are fast-growing industries. But this also raises a few ethical concerns, especially online. The age checks are fragile on some newer websites, leading to higher instances of minors gambling. This has led to calls for tighter regulations worldwide, including an upcoming Gambling Act Review White Paper from the UK government. This could cut revenue through taxation overnight, which poses a risk.

In fact, Flutter Entertainment’s online revenue for Q1 2022 dropped 20% year on year as the company launched changes to make gambling safer. While this was offset by a 45% jump in overall revenue from the US, it’s a sign that even big FTSE 100 companies in this highly regulated sector can suffer from new regulations. 

However, I’m still bullish on this company given the popularity and global appeal of its brands. It’s already an established powerhouse in the growing US market. Its primary strategy now is to grow its player base in the region while also focusing on high-volume markets like India, Brazil and Australia.

The industry is expected to be valued at $140bn by 2028. And I expect Flutter Entertainment to play a vital role in this growth. This is why I’m considering an investment in it if the upcoming full-year results are favourable. 

The Flutter share price had been sliding over the past year. But it looks like there’s been a change in investor sentiment since mid-July.

Looking back over the past few years, the Flutter share price has been through a bit of a boom and bust cycle. It’s all down to the pandemic, lockdowns, and social restrictions. And short-term booms like that can obscure the longer-term picture.

Revenue up, profit down

Looking at the latest figures, they still seem a bit mixed. Flutter saw an 11% rise in revenue compared to the first half of 2021. But adjusted EBITDA fell 19%.

Big one-off costs led to a reported loss after tax of £112m. But on an adjusted basis, Flutter recorded a £177m profit. That was still 42% down on last year, mind.

There’s some normalisation of longer-term gambling trends going on. But this mix of higher revenue with lower profits suggests we need more time to see where things are headed.

There is a change in geographic mix happening at the same time, which complicates things. In the US, Flutter saw positive adjusted EBITDA in the second quarter. It also says its sports betting market share grew to 51% in Q2, and that it has “confidence in full year 2023 EBITDA profit“.

Valuation

Valuing growth shares in the early stages of a potential expansion is hard. And Flutter is no exception. Doubling up its adjusted first-half earnings suggests a price-to-earnings (P/E) ratio of 54. While not quite Tesla or Amazon territory, that’s still high.

But trying to value Flutter Entertainment on this year’s possible earnings would be a bit short-sighted. The company is still only in the early stages of its US expansion, and that market is potentially very large.

Forecasts show that big P/E coming down to under 19 by 2024. That is still more than two years away. And the past few years have shown what can happen to stock markets in that kind of timescale.

But if the analysts are even in the right general area, I’d see Flutter as a buy at the current price.

Debt vs cash

I’m not put off by an increase in net debt to £3bn. Usually that would turn me away, but I can see Flutter being able to deal with it in the medium term. As a reflection on cash flow potential, forecasts have a 3% dividend yield down for 2024 too. Chief executive Peter Jackson also spoke of potential in “high growth markets such as India, Canada and Brazil.”

The downside though, is the UK. The industry is still waiting on the Gambling Act Review White Paper, which is taking a long time. Flutter could face potential problems with future gambling legislation, both here and worldwide.

I also fear that soaring prices might put a squeeze on disposable incomes over the next year or so. And that has to be another risk. But Flutter is definitely a candidate share to buy for me.

Here are two FTSE 100 shares that no one is talking about that I think could offer explosive growth going forward. 

Top FTSE 100 growth shares for my portfolio

Irish betting firm Flutter Entertainment (LSE:FLTR) and discount retailer B&M (LSE:BME) are the shares I am looking at right now. Both operate in sectors that are gaining a lot of traction and are coming off historic bear runs.

The recent online gambling surge is a rarely talked about side effect of the pandemic. The lack of live sports and the cryptocurrency surge created the perfect storm for online betting growth. 

I think Flutter Entertainment stands to gain a lot from this growth. This FTSE 100 share owns and operates some of the largest names in the space like Betfair, Paddy Power, and Sky Bet. The company also operates six hundred betting shops in the UK and Ireland. 

In 2021, the company generated total revenue of £6bn, 17% higher than in 2020. The company also saw a 23% growth in monthly players across all its platforms, registering 7.6m unique users. 

Flutter shares are down 46% since March 2021. It is trading at 8,700p, close to its pre-pandemic high of 9,300p. This means that I could acquire shares in this thriving business at close to 2019 levels! 

The next company on my watchlist, B&M Value Retail is a discount supermarket chain operating in Europe. The company recently opened its 700th store in England, making it one of the largest chains in the region. In fact, the company’s revenue has increased every year since 2009, with a big jump coming in 2021 with £4.8bn in sales. 

With UK’s inflation projected to increase well into 2023, I think discount retail will become more popular. And this FTSE 100 firm is already eating into the market share of giants like Tesco and Sainsburys.

After the 2022 market crash, B&M shares are down a whopping 34%. But in the last month alone, they are up 8.4%. I think this momentum could continue given the relatively low price-to-earnings ratio of 9.4 times and the steady 3.4% yield. 

Concerns and verdict

But it is always mandatory to look at the negatives before making an investment. Gambling companies are always subject to tighter regulations that could drop profits quickly. And I think there will be a pullback as policymakers are recognising rampant gambling addiction among youngsters. 

Similarly, undercutting large grocery chains will prove tougher for B&M if this inflation persists. B&M’s major sourcing market is China, which is also witnessing an economic slowdown. This could increase costs and drop revenue. 

Also, I think now is the best time to invest in FTSE 100 shares. In 2022, businesses look more streamlined and better prepared to navigate choppy waters. In the US, hiring rates have remained high, which is a sign that businesses are not reading too much into recession concerns

Both FTSE 100 shares look like they are back on their way up. And I think I will make an investment in these shares if the recovery continues in August.

1. Kingfisher (-11.1%)
2. Flutter Entertainment (-7.9%)
3. Ocado Group (-7.2%)
4. CRH (-6.9%)
5. Coca-Cola HBC (-6.4%).

Most of this downward momentum can be attributed to general market volatility. But in the case of Kingfisher (LSE:KGF) and Flutter Entertainment (LSE:FLTR), there are some justifiable reasons behind the decline. Let’s take a closer look at these FTSE 100 shares.

Solid earnings weak guidance

As a quick reminder, Kingfisher is a home improvements business that operates under several better-known brands like B&Q and Screwfix. Management recently published its full-year results, which, despite the stock’s downward trajectory, were quite encouraging. At least, I thought so.

Total sales grew by a respectable 9.7% on a constant currency basis. But thanks to expanding margins courtesy of Covid-19 loosening its grip on operations, pre-tax profits jumped by 33%,  hitting a record £1bn. And with surging profitability, shareholder dividends also enjoyed a substantial boost, growing from 8.25p per share to 12.4p.

That’s obviously positive news for the shares of this FTSE 100 business. But while 2021 may have delivered record-breaking numbers, 2022 may not be as good. Why? Because management issued pre-tax profit guidance of only £769m – a 23% drop.

With inflation triggering a reduction in consumer spending power, the firm seems to be acting conservatively with its expectations. So, I’m not surprised to see the stock suffer as a result. For now, I’m going to sit on the sidelines and see what happens in the coming months.

Another straggler

The next business should be no stranger for those who enjoy a trip to the bookies. Flutter Entertainment is the gambling company behind brands like Paddy Power and Betfair. In 2020, the group was able to deliver some fairly impressive growth. With everyone stuck in lockdown, online poker became a popular pastime worldwide. And with the legalisation of sports betting in the US, shares of this FTSE 100 company enjoyed several tailwinds.

Unfortunately, this momentum doesn’t seem to have lasted. While management has used the increase in cash flows to facilitate new acquisitions to fuel growth, some emerging headwinds are slowing progress down. New gambling regulations in the UK, Germany and the Netherlands are having a tangible impact on revenue. What’s more, despite the rapid growth in America, this part of the business has yet to contribute anything to the bottom line.

With more European nations looking to clamp down on gambling, the future seems uncertain for Flutter Entertainment. And consequently, many investors are taking their capital elsewhere, resulting in a steady decline over the past week and the last 12 months. So, I’ll be keeping this stock on my watchlist as well.

I am looking for companies that have a solid competitive advantage. And I am searching for firms operating in markets that might not be disrupted by the current geopolitical uncertainty. 

With that in mind, here are two FTSE 100 stocks that have recently caught my attention. 

FTSE 100 shares to buy

Veterinary pharmaceuticals group Dechra Pharmaceuticals (LSE: DPH) is one of the UK’s premier blue-chip stocks. 

The company develops and sells pharmaceutical products for the animal industry around the world. This market is very competitive and highly regulated.

Overcoming these challenges are probably the biggest risks to the company’s growth. Nevertheless, the corporation has performed well over the past couple of years by investing heavily in new products and research and development. 

Net profit has grown at a compound annual rate of 34% over the past six years. Analysts are expecting this growth to continue. 

Two trends could drive the company’s sales over the next five to 10 years. Demand for veterinary pharmaceuticals is increasing as the global population is growing. On top of this, the world needs more food, and farming animals is one of the best ways to meet rising demand. Keeping these animals healthy is vital, and Dechra’s products will play an important role here. 

Considering these challenges, I think the FTSE 100 group has a bright future, no matter what happens in Eastern Europe. As such, I would be happy to buy the stock from my portfolio today. 

Market growth

Flutter Entertainment (LSE: FLTR) is one of the largest online sports betting and gaming companies in the world. 

A surge in consumers using its platforms during the pandemic helped the enterprise generate windfall profits in 2020. And management is using this money wisely. The additional cash is helping to fund the company’s expansion in the US, which has the potential to be a massive growth market for the firm. 

That said, the FTSE 100 enterprise is not the only business to recognise the potential of this market. This too is a highly competitive industry, and larger players are throwing money at capturing market share. Flutter needs to keep investing, or it could be left behind. This is the most significant risk the corporation faces today. 

Still, I think it is unlikely the company’s operations will be disrupted significantly by the ongoing political crisis.

As such, I think the FTSE 100 business looks cheap compared to its potential after the recent sell-off. As the enterprise continues to expand around the world, I think it should benefit from increasing awareness of its brands and more significant economies of scale. These should help push down costs and improve profit margins. 

More events, more revenue opportunities

The first company I’m considering is Flutter Entertainment (LSE:FLTR). The bookmaking company owns brands such as Paddy Power and Betfair. It also recently purchased the online bingo company Tombola. The share price is down 26% over one year.

In the Q3 results released in November, it said total revenue was up 9% year-on-year. Part of this was due to the increase in sports events that happened versus the restrictions of 2020. Looking ahead to this summer and beyond, I don’t see Covid-19 being enough of an issue to cause major events to be cancelled.

From that angle, I think that this FTSE 100 growth stock should see revenue rise as we see more sporting events this year. Further, given that the unemployment rate is now 4.1%, it’s almost back at pre-pandemic levels. If this economic data holds firm, then more people in the UK in employment should have disposable income to potentially look to spend with Flutter.

In terms of risks, the latest results showed that revenue growth mostly came from outside of the UK (the US and Australia). Therefore, to have falling revenue in the largest and most competitive market is something that is a worry to me going forward.

Growth stocks with strong results

The second business I’m looking at is Barclays (LSE:BARC).  The share price has risen by 23% over the last year. As one of the largest banks globally, much of the performance depends on the state of the overall world economy. With 2021 results just out, it appears that the bank could do well this summer and beyond.

The 2021 report was impressive, with pre-tax profits soaring from £3.1bn in the previous year to £8.4bn last year. What I also noted was that the growth came from a variety of divisions, ranging from the investment bank to the consumer and wealth management arm. The benefit of this going forward is that earnings are diversified away from one specific group.

I think that the stock could see further gains this year. First, it was able to release £653m set aside for pandemic bad debt. I believe more could be released in coming quarters as the pandemic impact lessens. Second, higher interest rates should help the bank to be more profitable with a higher net interest margin. The Bank of England is forecast to raise rates twice over the summer months.

But I do need to be aware of the potential reputational damage to the bank that could be dug up from the ongoing investigation into former CEO Jes Staley. The ties with Jeffrey Epstein could go deeper than just the former CEO, so I need to be mindful of this.

Why the shares fell

It’s no secret that the rise of ethical investing has shone a spotlight on gambling firms such as Flutter Entertainment. In fact, in some instances, it has contributed to the share prices being detrimentally impacted. In addition to this, gambling stocks are often viewed as growth shares. Rising interest rates have meant investors are looking at defensive stocks to bolster their holdings. This has also caused issues for firms like Flutter Entertainment.

As I write, shares in Flutter Entertainment are trading for 11,175p per share. At this time last year, shares were trading for 14,480p, which is a 29% drop over a 12-month period. The shares have dipped to current levels from as high as 16,915p in March, which is a 35% drop. Despite all this, I am still bullish on Flutter Entertainment shares.

FTSE 100 bargain

Gambling is a huge growth market and the pandemic saw many new customers sign up throughout Flutter’s different platforms. Although Flutter Entertainment itself may not be a household name, a lot of its brands are instantly recognisable. These include PaddyPower, Betfair, FanDuel, Sky Betting and Gaming and many more. Flutter currently has 14m active customers in 100 different markets supported by 14,000 employees. It is a global powerhouse. It also provides betting technology and software to other firms as another revenue stream.

One reason I particularly like Flutter is its propensity to grow and expand. It usually does this by acquisitions. For example, Flutter purchased a controlling stake in US fantasy sports company FanDuel. It has since grown to become one of the largest fantasy sports players in the US. Furthermore, Flutter recently purchased Tombola, an online bingo platform for £402m. These acquisitions give Flutter access to new customers and markets and can boost revenue.

Flutter’s performance has been positive in recent times. I do understand that past performance is not a guarantee of the future, however. Looking back I can see that revenue and operating profit have increased each year for the past four years.

FTSE 100 stocks have risks

Two main risks stand out for me that could affect Flutter shares and any potential returns. Firstly, the recent spotlight on gambling laws, especially here in the UK, highlighted by the discussions in parliament, could affect Flutter’s ability to operate and affect revenues and investor sentiment. This has already happened in the Netherlands and Flutter exited that market. Next, competition in most growth markets is intense and gambling and gaming is no different. All firms are vying for new customer sign ups and for these customers to spend their hard-earned cash on their respective platforms.

Overall I think Flutter is one of the best FTSE 100 stocks for me to buy right now. It has a huge operation and access to many different markets via its multitude of well-known brands. Flutter recognises opportunities to expand and strategically acquires brands and firms that can enhance its offering. Despite recent share price issues, I still think it would be a good addition to my portfolio and I would add shares at current levels which are cheaper than usual.

Three FTSE 100 fallers I’d buy

These three FTSE 100 stocks are among the index’s worst performers over the past 12 months:

I regard all three of these fallen FTSE 100 shares as potential recovery plays, partly based on their terrible performances since early 2021. The best performer, London Stock Exchange Group (LSE: LSEG), has seen its shares tumble by 20.4% over 12 months. Meanwhile, Polymetal International (LSE: POLY) shares crashed by 31.4% in one year.

Why I’d buy LSEG

London Stock Exchange Group is a leading operator of stock exchanges and provider of financial data. For me, LSEG is a rare bird: a potentially undervalued FTSE 100 fintech firm. At their all-time peak, LSEG shares hit an intra-day high of 10,010p on 16 February 2021. However, they have since tumbled after the group struggled with integrating data provider Refinitiv (bought for $27bn in 2019). Yet I regard LSEG as having a powerful competitive moat around its business — something that billionaire investor Warren Buffett loves. Over the past five years, LSEG stock has soared by 141.5%, before crashing in 2021. Were LSEG to return to growth, I would expect its share price to respond accordingly. However, it faces stiff competition from very strong rivals, including several US giants.

Two more losers I’d buy

Second is Flutter Entertainment (LSE: FLTR), a FTSE 100 provider of gambling and betting. Flutter’s top brands include PaddyPower, Betfair, FanDuel, FoxBet, Sky Betting and Gaming, and PokerStars. Flutter employs more than 14,000 people, servicing 14m customers in 100 different markets. At their 52-week high, Flutter shares peaked at 17,130p on 19 March 2021. Ten months later, they cost 11,275p piece. That’s a collapse of 34.2%. Flutter’s recent earnings dipped following punter-friendly sporting results in October. Also, it temporarily withdrew from the Netherlands market and has exited other minor markets. But Flutter has heavy exposure to the US, where legal gambling is exploding and where it has a commanding 42% share of online sports betting. However, Flutter shares haven’t paid a dividend since payments were suspended since May 2020. Even so, I’d still take a punt on Flutter stock today.

Polymetal International is the third potentially cheap stock I’d buy now. Polymetal is a complicated beast: an Anglo-Russian miner of gold and silver, registered in Jersey and with headquarters in Cyprus. To me, this FTSE 100 share is the most conventionally cheap of the three. Currently, it trades on a lowly price-to-earnings ratio of 6.8 and an earnings yield of 14.7%. What’s more, the dividend yield of over 8.3% a year is one of the FTSE 100’s highest. Granted, precious-metals prices had a poor 2021, but who’s to say that this will continue in 2022-23? Based on its modest fundamentals, I’d buy Polymetal today.

Short-term struggles

It hasn’t been easy going for Flutter of late. Q3 results released in early November did show some good growth, but it also saw the business cut its full-year guidance.

For example, adjusted EBITDA was cut from previous projections of £1.27bn-£1.37bn to £1.24bn-£1.28bn for the group, excluding the US. In the US, Flutter now expects a loss for the year at the higher end of the previous guidance. It spoke of unfavourable sports results as a key factor in October that contributed to this revision lower in numbers for the year.

Aside from the numbers, Flutter Entertainment shares also fell as a large number of MPs have been lobbying for a review of gambling laws in the UK. In late November, an open letter was submitted by MPs to push for more stringent limits as more than 55,000 children (11-16 year olds) are now claimed to be gambling addicts. 

Any tightening of restrictions would mean a revenue negative hit for Flutter, so the shares dropped on this news.

Reasons to be positive

The above points have pushed Flutter Entertainment shares down over the past quarter. But I think that they’re starting to be attractively priced. I note the concerns raised above as potential risks, but I do also see plenty of reasons to be positive.

For example, the business recently said it’s buying online bingo operator Tombola for £402m. This deal is expected to complete in Q1/Q2 next year. I think this is a smart move as it gives Flutter a more diversified range of companies within the group. With PaddyPower and BetFair concentrating on the sports market, having a more traditional casino company should help to spread risk. After all, with negative sports results being flagged in the Q3 report, Tombola revenues should help to balance this out if issues are still there in 2022.

Another reason why I think Flutter Entertainment shares could do well next year is continued growth in the US. In the most recent results, US revenue for the first nine months of the year was up 85% versus 2020. America is a huge and potentially lucrative market for the firm. If Flutter can continue with the current strategy, then I’d expect this growth to continue next year.

Overall, I think that the recent dip in the share price represents a good opportunity for me to buy. I’m considering doing so at the moment. There are risks around recent results and potential restrictions. But I feel the potential rewards from the US and new acquisitions should outweigh these.