FTSE 100 gambling stocks in focus

Why FTSE 100 companies Flutter Entertainment and Entain could have particular investment appeal…

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of one pound coins falling over

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Last week, in the wake of Glorious Goodwood and ahead of the York Ebor Festival, the UK’s sports betting and gaming stocks were in the news.
 
The big FTSE 100 players, Flutter Entertainment (LSE: FLTR) and Entain (LSE: ENT), both issued their half-year results. And boy, did they make a splash.
 
The week also brought news of a contraction in the UK economy, fuelling expectations of a recession. ‘Sin stocks’, like fags, booze and bookmaking firms, are often said to be resilient when times are tough. Could investing in Flutter and Entain be a smart move for investors?

On form

Entain was first up with its results, which were issued on Thursday. On a down day for the market, the stock headed the blue-chip leaders board with a rise of 3.7%. It gained a further 4.1% on Friday.
 
Flutter Entertainment, which released its results on Friday, topped the leaders board that day, bolting home with an impressive surge of 14.1%.
 
Despite these gains, both stocks are down on a 12-month view. Entain by 27.3% and Flutter by 23.4%. And the declines look worse set against the Footsie, which has put on 8.2% over the period.
 
However, extend the timescale further still — to 10 years — and the two stocks have real thoroughbred pedigrees. Flutter has delivered an annualised 20.8% return and Entain 26.7%, compared with 6.5% from the Footsie.

You never meet a poor bookmaker

At a very basic level, the business of bookmaking is a simple and attractive one — at least for investors who have no moral objection to gambling.

You’re probably familiar with horse-racing betting odds: 7/4, 100/30, 6/1, and the like. All these fractional odds have a percentage equivalent. If the odds on a race were to total 100%, the bookmaker should break-even. If they were to total less than 100%, punters would be able to back every horse in the field and make a profit.

Bookmakers lay odds that total over 100%. In a three-horse race, or any three-outcome event (such as win-draw-lose on a football match), the ‘overround’, as it’s called, may be in the 105%-110% region.

However, the bigger the number of possible outcomes to the event, the bigger the overround tends to be. For example, on the Grand National it’s been as high as 165%. In this instance, for every £165 taken in bets, a bookie would expect to hand back around £100 to winning punters and pocket £65.

It’s not without reason that the saying “you never meet a poor bookmaker” has been around for donkey’s years. It all starts with the overround.

Accumulators

The status of Flutter and Entain as FTSE 100 stocks is a testament to the structural growth of the industry and the success of the two companies’ business strategies. They have some key things in common.
 
Both are consolidators in the industry, making multiple acquisitions. The brands accumulated under the Flutter umbrella include Betfair, Paddy Power and Sky Bet. Entain’s portfolio includes Coral, Ladbrokes and Sportingbet.
 
Increased scale, expertise, technology and resources give Flutter and Entain competitive advantages over smaller, standalone operators.

Spread betting

Helped by acquisitions, both companies have become increasingly diversified, including significant growth in online operations.
 
Meanwhile, international expansion has broadened their geographical diversification. For example, Flutter owns US #1 sportsbook FanDuel, while Entain owns European betting band bwin, with leading positions in markets including Germany, Belgium, France, Italy and Spain.
 
Flutter and Entain are also diversified beyond sports betting, as shown by brands like PokerStars and tombola (Flutter), plus CasinoClub and Foxy Bingo (Entain).
 
Wide diversification by geography and business line should help Flutter and Entain remain resilient in a UK recession.

Stayers’ race

In their half-year results, both companies reiterated their financial guidance for the full year. They said they’re vigilant to the uncertain macroeconomic backdrop, but Flutter reported “no discernible signs” of a deterioration in key spend indicators and Entain said that “momentum remains strong.”

Could investing in these two gambling stocks be a smart move for investors? Well, I see a lot to like about the businesses. They appear to have successful strategies and long growth runways. Both already have strong records of growth through regulatory change and headwinds, forged by their increasing scale, diversification and operational excellence.

Their 10-year records of 20%+ annualised shareholder returns are impressive, and the weakness of their shares over the last 12 months could represent a good opportunity.

One thing’s for sure, while I have a fancy for Earl of Tyrone in the Ebor Handicap on Saturday, I’d sooner back Flutter and Entain for long-term wealth building!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »