EU CONSUMER CYCLICALS: Flutter | Euro FV
(Secured 29s; Ba1/BBB- Pos/BBB)
€29s screen value and we would not have a issue if the new line prices through our FV. This is gaming risk - technicals may have final say on where it prices/how it performs but Lottomatica more clearly screened value last month (+1.8pts since). Flutter is a firm name but still shows signs of sharply decompressing (+110bps last month when IG moved mere +25). Equities trade on growth multiples but in exchange for that exposure to faster growing online sports betting you will be exposed to more earnings volatility than a lotto operator (like Lottomatica or FDJ) or services company (like IGT).
Total size $2.3b (€2b):
- min. €400m 6NC2 IPT low-mid 4% vs. FV 4.1%
- min. £350m 6NC2 mid-high 6%
- min. $500m 6NC2 IPT low 6%
Irish by origin, headquarters recently moved to US, alongside now dual NYSE/LSE listing. It holds a 42% leading market share in US sports betting and has ridden the stellar market growth there after the PASPA law prohibiting online betting was overturned by the Supreme court. Back then it was a $10b market cap - today it is $40b+. As of today 30 of 50 states have legalised online sports betting and 6 states have legalised iGaming (casino-like games that are online). Initially that growth was met with investments but now it is scaling and showing on the bottom line (EBITDA more than doubled last year). Along with that, ample FCF is now hitting the balance sheet - it announced its first buyback programme (of $5b over 3-4yrs) late last year.
It's main competitor in the US is DraftKing {DKNG US Equity} - but unlike Draft, Flutter brings international diversification including UK (22% of revenue), Italy (11%) and Australia (7%) where it holds leading market shares of 30%/30%/45% respectively.
It has a leverage target of 2.0-2.5x that it historically not taken seriously instead prioritising acquisitions - which has paid off (e.g. Fanduel in 2018). Pro-forma it will be g/n 3.5x/3.0x levered (we saw 3.1x) - on FY guidance that will naturally delever into 3.0x/2.6x.
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US 10YR FUTURE TECHS: (M5) Recent Gains Are Considered Corrective
- RES 4: 113-04 76.4% retracement of the Apr 7 - 11 bear leg
- RES 3: 112-12 61.8% retracement of the Apr 7 - 11 bear leg
- RES 2: 111-25 50.0% retracement of the Apr 7 - 11 bear leg
- RES 1: 111-01+/17+ 20-day EMA / High Apr 16
- PRICE: 110-21 @ 11:09 BST Apr 22
- SUP 1: 110-15/109-08 Low Apr 15 / 11 and the bear trigger
- SUP 2: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
- SUP 3: 108-21 Low Feb 19
- SUP 4: 108-03+ Low Dec 12 ‘24 and a key support
Treasury futures have pulled back from last week’s highs. For now, recent gains are considered corrective and the bear cycle that started Apr 7, remains in play. The next resistance to watch is 111-25, 50.0% of the Apr 7 - 11 bear legsell-off. For bears, a resumption of weakness would refocus attention on 109-08, the Apr 11 low and the bear trigger. Clearance of this level would resume the downtrend.
OUTLOOK: Price Signal Summary - USD Downtrend Remains Firmly Intact
- In FX, the trend in EURUSD remains bullish and Monday’s cycle high reinforces current conditions and highlights a bullish start to this week’s session. The break higher maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode position, signalling a continued dominant uptrend. The focus is on 1.1608 next, the Nov 9 2021 high. Key support is unchanged at the 20-day EMA, at 1.1140.
- The trend condition in GBPUSD remains up and Monday’s rally reinforces current conditions. The pair has recently breached key resistance at 1.3207, the Apr 3 high and a bull trigger. This highlights a resumption of the medium-term uptrend. Note that moving average studies are in a bull-mode position, signalling a dominant uptrend. Sights are on 1.3434 next, the Sep 26 ‘24 high. Support to watch is 1.3075, the 20-day EMA.
- The trend condition in USDJPY remains bearish and this week’s fresh cycle lows reinforce this condition. The extension down confirms a resumption of the downtrend and maintains the price sequence of lower lows and lower highs. Note too that moving average studies are in a bear-mode position highlighting a dominant downtrend. Sights are on 139.79 next, a 1.382 projection of the Feb 12 - Mar 11 - 28 price swing. The 1.50 projection is at 138.82. Initial firm resistance to watch is the 20-day EMA, at 145.25. First resistance is 142.25, the Apr 21 high.
FOREX: No Let-Up for FX Risk as Lagged Effects Keenly Felt by Corporates
- While front-end implied vols have abated from highs, the fresh cycle low in the USD Index and lagged impacts on corporates is still a major present risk. The histogram below shows that while 3m implied is off 12m highs, it remains well above the upper quartile for the majority of G10 FX.
- The effects of broad USD volatility are also being keenly felt in the corporate world: UK AIM-listed currency risk management firm Argentex have suspended their shares after FX volatility compromised their short-term liquidity position. In an RNS release they note that if FX vols persist its liquidity position would be "significantly stretched". Full RNS post here: https://www.londonstockexchange.com/news-article/AGFX/financial-position-suspension-of-trading/16998959
- Firms like Argentex sell FX hedging products including forwards and options to corporate clients, who are then subject to margin calls should markets move against their position. In turn, the firm hedges its cumulative exposure in the wholesale market via major banking partners - but are then exposed to the same margin call risk through times of volatility. That appears to be the scenario playing out here - and is unlikely to be a one-off case.
- Distressed liquidity among corporate service providers is an effective proxy for the underlying client - and serves as a further reminder of the dangers to economic activity from even brief spells of extended FX vol.
