The theory of marginal gains popularised by controversial sports coach Dave Brailsford is that numerous small improvements bring victory. The City of London seems to be suffering the inverse: numerous marginal losses that diminish competitiveness. A primary US listing for gambling group Flutter would figure as one of these.
The London stock market is suffering a trickle of defections. Last year, for example, Australian miner BHP ditched its dual listing in favour of a main quote back home. Plumbing group Ferguson switched its primary listing to New York.
Each departure marginally reduces the status of the City. The stocks disappear from the flagship FTSE 100 index. Incomers of lower value replace them. Liquidity takes a hit. Opportunities for City bankers and advisers diminish.
That is a problem for a financial centre beset by Brexit-related business leakage. But Dublin-based Flutter has no patriotic reason for sticking with London and plenty of financial motives for switching to New York.
Flutter’s lossmaking US business FanDuel generated just under a quarter of £6.3bn in group revenues last year. But it should become Flutter’s main sales engine as sports betting takes off in the US. FanDuel should start producing cash profits this year.
Market liquidity is another issue. Investors trade around 2.8 per cent of the market worth of Nasdaq-listed rival DraftKings daily. The comparative figure for Flutter in London is 0.5 per cent.
Flutter hopes for a valuation uplift in New York. Lex calculates this could be worth some £5bn on top of the current enterprise value of £27bn. That values FanDuel in line with US peers and the non-US business at a conservative 12 times ebitda multiple.
Flutter bosses are doubtless also aware their pay would rise towards US norms. But they will have to convince investors on two counts. First, to approve a US additional listing. Second to make this the primary quote.
US activist ValueAct will hardly object. UK long funds will be less of a pushover. Meanwhile, Fox might have preferred a separate listing for FanDuel, on which it holds options.
The departure of Flutter would trigger new lamentation in the City. The prospect of another marginal loss strengthens the case for multiple, marginal improvements. Despite obituaries for globalisation, the market for capital remains resolutely international.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
Article was changed after publication to update enterprise value.
