(BFM Bourse) – The group celebrates this Monday the three years of its entry on the Parisian coast with a price up 80% due to good financial results and a successful digital shift. But since the investigation launched by the European Commission on the exclusive rights, the nice course of the title is blocked.
La Française des Jeux has clearly been a winning bet for investors. The company celebrates this Monday its three years of presence on the Paris Stock Exchange, with a stock market history to make many large caps blush.
From an IPO price set at 19.9 euros for institutional investors – and 19.5 euros for individuals who benefited from a discount – the share price is now trading at around 35 euros, an increase of around 80% . As its CEO, Stéphane Pallez, pointed out on Thursday, during a day dedicated to investors, the SBF 120 only gained around 10% over the period.
This progress rewarded excellent financial results, with an average growth in turnover of 6% over the period 2019-2022 – including the 8% growth expected this year – despite the health crisis. The group intends to maintain this course by aiming for an increase in its revenues, on average, at the top of a range of 4% to 5% by 2025. The gross operating margin (Ebitda margin) has constantly progressed, from 20.6% in 2019 to 23.1% last year. It should reach 24% this year and then more than 25% in 2025.
“FDJ has, on the operational side, each time done better than expected, excluding the impact of the Covid. And even when they managed the activity rather well during the health crisis”, underlines Sabrina Blanc, head of action research for the “hotel, leisure and catering” sector at Societe Generale.
Brussels as spoilsport
However, by looking more closely at the stock market journey of the value, a break is observed. “The FDJ action went through two phases: one of almost constant progression – the Covid marked a relatively temporary halt – until July 2021. The opening of the investigation into the exclusive rights by the European Commission s is then translated by a drop in the action which has since struggled to start again”, develops Sabrina Blanc.
As part of its privatization, in 2020 FDJ paid a cash payment of 380 million euros to the French State in order to retain its exclusive rights to the physical and online lottery, as well as to sports betting at points of sale during a period of 25 years. The company previously held these rights, which represent approximately 95% of its stakes, for an unlimited period.
The European Commission opened an investigation in July 2021 to find out whether this measure did not provide an undue economic advantage to the company. Brussels then sent a letter to France in December 2021 in which it provisionally considered that the remuneration of 380 million euros “seems[ait] substantially lower than a price that could be considered a market price”. “Also, an advantage for the benefit of the FDJ seems to be present at this stage”, also noted the Commission.
Brussels is looking in particular at a similar operation that took place in Greece in 2013, where OPAP, the local gambling operator, had paid an amount of 375 million euros but to obtain rights over a period well shorter, 10 years. And on a Greek market which remains lower than that of France by three to four times.
“OPAP paid 375 million euros for rights over 10 years, i.e. 8% of annual stakes in Greece, against 2% for FDJ. But of this amount only 75 million were actually paid for new rights, the 300 millions of euros remaining actually represent taxes which were then not collected by the Greek government, therefore advances”, nuance Sabrina Blanc. “If the OPAP is a reference, it may not be the best reference,” she continues.
“Furthermore, each gaming market in Europe is different, with different taxation and regulatory frameworks. France, but also Portugal and Poland are known to be the most restrictive, which in the case of France explains the margins potentially lower compared to other European operators”, adds the analyst.
A Sword of Damocles
Still, FDJ risks paying an additional price. In early July, Citi mentioned a significant potential amount, around 1.5 billion euros. “In the worst case scenario, the amount for the exclusive rights would rise to 1.5 billion euros, or an additional price of 1.1 billion euros”, puts Sabrina Blanc into perspective.
Uncertainty is likely to persist for several more months. The European Commission has not given a timetable. Stéphane Pallez said Thursday that he had not received any new information from Brussels and recalled having, with the French State, addressed the elements and answered the questions asked by the European Commission. She indicated that a response by the end of the year was unlikely and hoped to reach a conclusion in the first half of 2023. FDJ had previously assured that it intended to demonstrate that national and European rights had been respected. in this file.
“This is clearly a glass ceiling for action. Even setting out all possible scenarios, this investigation remains a question mark. And this uncertainty will persist until the European Commission delivers its final verdict,” warns Sabrina Blanc. “Many investors see the potential of the title but believe that it is not possible to enter the title as long as this file is not settled”, she adds.
A successful digital transformation
Beyond the investigation by the European Commission, FDJ had to demonstrate its ability to continue its digital shift.
“More recently, at the beginning of 2022, the title suffered from market questions about the group’s potential in the ‘online’, fearing that demand for digital would fade, with a backlash due to the improvement in the health context. But FDJ reassured the market in its latest publications with supporting figures”, underlines Sabrina Blanc.
In the third quarters in particular, uploads grew by 34.7% over one year and represented 13% of the total, against nearly 11% for the whole of 2021. And the group announced Thursday that it anticipated a growth of its uploads by more than 20% per year over the period 2022-2025.
With this in mind, FDJ has strengthened its digital arsenal. The company recently launched an online poker offering and on Thursday announced an agreement to acquire ZEturf, an online horse racing betting player that should provide it with a market share of around 20%.
“Overall, the FDJ has succeeded in its digital transformation. The group has the tools and platforms and continues to invest regularly in digital to increase the number of users (around 5 million at the end of 2022) and develop its product offer. They still have to deploy these assets more,” concludes Sabrina Blanc.
Julien Marion – ©2022 BFM Bourse
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