Top UK Stocks to Watch: Flutter shares rise after beating expectations

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Josh Warner
By :  ,  Market Analyst

Top News: Flutter grows player numbers by 40% in first half

Flutter Entertainment beat expectations in the first half as it continued to attract more players thanks to a normalised sporting calendar and continued strength in gaming.

The gambling firm revealed revenue doubled year-on-year to £3.05 billion from just £1.53 billion the year before. That came in well ahead of the £2.82 billion expected by analysts. That was supported by a 40% jump in the number of average monthly players to 7.6 million from 5.5 million.

Adjusted Ebitda climbed 75% to £597 million from £342 million, also beating the $565.5 million forecast by the markets after benefiting from the combination with The Stars Group back in May 2020. Pretax profit at the bottom-line leapt to £77 million from £24 million.

Flutter shares were trading 5.1% higher in early trade this morning at 13600.0p, marking its highest level in over a month.

‘The first half of 2021 exceeded our expectations as we made substantial progress against our operational and strategic objectives while maintaining excellent momentum in growing our player base. Our global sports businesses benefitted from further enhancements to our products and the return to more normalised sporting calendars while we sustained our strong performance in gaming despite the challenging comparatives set last year,’ said chief executive Peter Jackson.

The US dragged down earnings, which came in at £684 million when its US operations were stripped out. Flutter said it expects annual adjusted Ebitda excluding the US to come in between £1.27 to £1.37 billion over the full year, assuming its physical stores can remain open.

The US division, underpinned by FanDuel’s market-leading position in sports betting, is expected to book an adjusted Ebitda loss of $225 to $275 million. That assumes it will expand into Arizona and Connecticut. Flutter said its US arm should start to generate positive Ebitda in 2023.

‘In the US, we remain the number 1 online sports betting operator by some distance thanks to the quality of our products and the extensive reach of the FanDuel brand. The customer economics we are seeing in the US bode very well for the future, with early FanDuel customers generating positive payback within the first 12 months of acquisition. We remain absolutely focused on extending our sports product advantages and replicating our market share success in further states as they regulate,’ said Jackson.  

Outside the key US growth market, Flutter said it grew average monthly players in the UK and Ireland by 44% as it continues to integrate its three brands together, while reporting 52% growth in player numbers in Australia alongside ‘very high customer retention rates’.

IHG confident it can surpass pre-pandemic levels of growth and profitability

InterContinental Hotels Group said it saw a ‘significant improvement’ in demand as it continues to bounce back alongside the travel industry after being hit hard by the pandemic over the last 18 months.

Revenue from reportable segments rose 16% year-on-year to $565 million from $488 million the year before, hitting analyst expectations. IHG reported operating profit of $138 million compared to a $233 million loss. The improved earnings were the result in higher demand for hotels compared to last year and higher spending per room.

Revenue per average room was up 20% compared to last year, but remained some 43% below pre-pandemic levels in the first half. Still, that is continuing to improve, with the second quarter figure only 36% below pre-pandemic levels in 2019.

‘Trading improved significantly during the first half of 2021, with travel demand returning strongly as vaccines roll out, restrictions ease, and economic activity rebuilds. It has been great to see our teams welcome more and more guests back into our hotels, with domestic leisure bookings leading the way, particularly in the US and China,’ said chief executive Keith Barr.

‘Essential business travel was a key element of our resilience throughout the pandemic, and we are now seeing more group activity and corporate bookings start to come back. These trends and the momentum in the business have continued in recent weeks, including in EMEAA where a lifting of travel restrictions in some markets is also now driving improvements in demand,’ he added.

IHG is confident it can surpass pre-pandemic levels of growth and profitability going forward, buoyed by the fact it has continued to rapidly open more rooms to ensure it is well-positioned as the recovery continues. It opened 17,400 new rooms on a net basis by opening 132 hotels in the first half, pushing its total up to 884,000 rooms in 5,994 hotels. It added another 32,600 rooms to its pipeline, which now has 274,000 rooms in 1,805 hotels.

The company also announced it is launching a new Luxury & Lifestyle collection brand to offer high quality independent hotels and IHG expects to have 100 hotels in that segment within the next decade.

‘The actions we have taken during the last 18 months position us well to exceed our pre-pandemic level of growth and profitability. While there is a risk of trading volatility in the balance of the year, and discretionary business trips, group bookings and international travel will take time to fully recover, we are confident in the strength of IHG's future prospects,’ said Barr.

IHG has unsurprisingly decided not to pay an interim dividend for the half given the ongoing challenges it faces. Still, the company delivered strong cash conversion with adjusted free cashflow of $147 million in the half compared to a $66 million outflow last year.

IHG shares were trading 0.1% higher in early trade this morning at 4732.5p.

IWG confident hybrid working will drive demand for workspace

IWG remained in the red during the first half of 2021 as the pandemic continues to weigh on demand for office space, but said occupancy levels started to recover in the second quarter and that it is confident the new world of hybrid working can benefit the business.  

IWG shares were trading 2.5% higher in early trade this morning at 327.5p.

Revenue in the first half fell to £1.06 billion from £1.32 billion the year before and adjusted Ebitda dropped to £528.6 million from £694.5 million. The loss before tax of £162.7 million narrowed from the £237.3 million loss booked the year before.

Occupancy levels averaged 68.4% in the period compared to 75.3% last year when the pandemic initially hit. The recovery seems to be slow and steady, with occupancy in the second quarter just 1.2% higher than the first.

Still, IWG is confident things could accelerate going forward considering enquiries and customer retention rates both returned to pre-pandemic levels in the second quarter. Other areas have also performed better, with revenue from meeting rooms and day-office use coming in almost 40% higher in the second than the first.

IWG said the US was delivering the strongest recovery and said June was a record month in terms of the amount of space it sold.

The company is feeling confident that the pandemic-induced demand for hybrid working will benefit the business. It said it signed-up a record 900 enterprise clients in the first half, demonstrating the increased demand for flexible office space.

‘The month-on-month improvements in our key operating metrics as we came into the summer months are encouraging and we anticipate this momentum continuing into the second half of 2021. The significant move to hybrid working has created unprecedented demand for our flexible work products. This fundamental shift in the way people work is clearly a positive tailwind for IWG over the medium to longer term and we are seeing increasing levels of interest from enterprises wishing to transform their working practices,’ said chief executive Mark Dixon.

‘Whilst the pace of recovery remains dependent on the continuing easing of pandemic restrictions across our markets, we look forward to the second half with cautious optimism having implemented the necessary changes to our network and cost base.  Looking further ahead, with the improvements we are observing in our operating environment, we remain confident of a stronger recovery in 2022,’ he added.

IWG said it delivered around £190 million worth of cuts in underlying pre-growth costs in the first half and is on course to hit £320 million.

Bellway sales bounce back but warns prices will moderate

Bellway said revenue came close to returning to pre-pandemic levels in the recently-ended financial year as it managed to build more houses and provided a buoyant outlook as reservation rates surpass what was seen in 2019 before the coronavirus crisis.

The company said it built 10,138 homes in the year to the end of July, up 35% from the 7,522 houses built the year before. More importantly, that was not far behind the 10,892 homes delivered in the 2019 financial year.

In turn, annual revenue rose 41% to over £3.1 billion from £2.2 billion, and came in just 2.5% below the 2019 financial year. That was further boosted by the fact house prices are climbing at a faster rate than the cost inputs for building them. Average selling prices came in at over £306,000 compared to £293,054 in the last financial year and also coming in well ahead of pre-pandemic levels. Still, Bellway warned it expects this to moderate closer to £290,000 in the new financial year.

‘Bellway has delivered a strong performance, with volume output once again above 10,000 homes and housing revenue approaching 2019 levels,’ said chief executive Jason Honeyman.

Bellway said there is still ‘good underlying demand across the country’ with a private net reservation rate of 169 per week achieved during the year, up from 141 in the 2020 financial year and 160 in 2019. It also reported a record forward sales position with an order book containing 7,082 homes worth £2.02 billion to underpin its growth prospects in the new financial year. A year ago, its order book stood at 6,588 homes worth £1.76 billion.

Going forward, we are in an excellent position to continue our long-term growth strategy. The group benefits from a substantial order book and a robust balance sheet. In addition, our record investment in land and the resultant strengthened land bank provides a strong platform for both volume growth and further margin recovery in the years ahead,’ said Honeyman.

Bellway said it has taken a proactive but disciplined approach to buying land but bought a record 19,819 plots during the year compared to just 12,124 plots the year before. It said the land it has bought is in ‘desirable locations’, helping strengthen the land bank to improve its prospects over the coming years.

Bellway shares were trading 0.1% lower in early trade this morning at 3308.0p.

Watches of Switzerland shares hit new highs as sales almost double

Watches of Switzerland said sales almost doubled in the first quarter of its new financial year thanks to strong performances in both the UK and the US, underpinning its confidence for the rest of the year.

The company said revenue in the first quarter covering the 13 weeks to August 1 almost doubled year-on-year to £297.5 million from £151.6 million. That was partly flattered by the fact its UK stores were shut for six weeks and US stores for four weeks thanks to lockdowns in the year ago period.

Watches of Switzerland shares were up 1.7% in early trade at 1043.0p, having hit a fresh all-time high of 1068.0p in early trade. The stock has rallied over 282% over the last 12 months.

Luxury watch sales jumped 97% to £259.3 million while luxury jewellery sales increased 99% to £20.1 million. The company said it had continued to deliver high conversion and strong domestic sales despite traffic levels to its stores remaining subdued. Online sales were up 15.9% from last year and has maintained strong growth even as UK stores have reopened.

In the US, revenue rose 95% to £75.8 million thanks to higher volumes, continued growth online and the recovery of traffic to its stores in Las Vegas and New York. It also said its eight mono-brands boutiques that have recently opened also helped boost revenue.

‘Our US business goes from strength to strength, with excellent, broad-based growth continuing to characterise our performance in this market.  Both luxury watches and luxury jewellery are performing strongly and our refurbished Mayors stores have continued to generate significant sales uplifts.  We continue to invest in digital marketing initiatives to drive brand awareness, including through our recently introduced 'Anywhere, Anytime' campaign,’ said chief executive Brian Duffy.

Meanwhile, in the UK, revenue more than doubled to £221.7 million thanks to higher volumes and selling a larger proportion of higher-priced goods.

‘We have had a very good start to the new financial year with a further acceleration in momentum, versus pre COVID-19 pandemic growth levels, underpinned by diversified growth across our markets and categories,’ said Duffy.

‘Looking ahead, we are excited about the planned launch in September 2021 of our Xenia project to further advance the customer experience.  We will continue to invest for growth and to advance our strategy to further enhance our leading position in the UK and become a leader in the US luxury watch market,’ he added.

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