(News Bulletin 247) – The games of chance specialist, listed on the stock market in 2019, has a market capitalization that is still a little tight to claim the stock market elite. But the takeover of the Swedish group Kindred could open many doors for it.

If the latest IPOs are far from having been crowned with success in recent years, that of the FDJ has undoubtedly made its mark, arousing the enthusiasm of investors, particularly individuals.

Compared to its price retained when it entered the Paris stock market, of 19.9 euros (for institutional investors, individuals had benefited from a 2% discount), the share has almost doubled to reach 38.18 euros

.

Moreover, only a few months after its IPO, the FDJ entered the SBF 120 index, the second largest index on the stock market after the CAC 40, in March 2020. The temptation is great to ask yourself a question quite simple: does the FDJ have the potential to join the CAC 40?

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

A somewhat fair capitalization

Remember that entry into this index is decided by the Euronext scientific council, which is based in particular (but not only) on two quantitative criteria. The market capitalization – that is to say the total value of all the shares of a company – and more precisely the free-floating market capitalization, as well as the trading volumes.

A quick look at the volumes of the last five days (on Boursorama) shows that the orders placed on FDJ are comparable to those of Unibail-Rodamco-Westfield, resident of the CAC 40, as well as those of Eiffage, which had been cited as one of the potential candidates to enter the index last December.

The market capitalization still turns out to be a little fair. The total weight of FDJ shares currently stands at 7.3 billion euros, which places Stéphane Pallez’s company between the fiftieth and sixtieth market capitalization on the Paris Stock Exchange, according to companiesmarketcap.com.

Moreover, the absence of FDJ within the CAC Next 20, the antechamber of the CAC 40 which brings together in some way 20 candidates for entry into the reference index, leads us to believe that it will take several quarters for FDJ becomes a serious contender. Several companies present in the CAC 40 Next 20 had been mentioned by the specialists, first and foremost Accor, Sodexo and Vivendi (and therefore Eiffage).

A structuring operation

However, FDJ is preparing to change dimension. The company announced at the end of January the planned acquisition of the Swedish Kindred, parent company of the Unibet sports betting group, for a company value of 2.6 billion euros. This acquisition will considerably increase the size of FDJ, with its turnover expected to increase by around a third, to 3.5 billion euros, according to projections communicated by the company.

Which should bring a certain weight to society, economically. “This is a structuring deal which can open doors for them and, yes, why not help them enter the CAC 40,” judges a financial intermediary.

Asked about a potential entry of FDJ into the CAC 40 in the medium term, Julien Quistrebert, manager at Tailor AM, believes that “it is possible”. “In view of the market capitalization it is plausible”, as well as “on the diversification aspect, the company operates in a really different activity” from that of the other groups present on the CAC 40, continues the expert. It is true that the leisure and games segment is hardly represented in the flagship index.

In addition, if the FDJ share is currently at 38.18 euros, it has already reached much higher altitudes, at more than 51.5 euros, in July 2021. Returning to such a level would bring its capitalization to almost 10 billion euros, which is, all things being equal, more than Teleperformance or Accor (9.2 billion), perceived as the favorite to join the CAC 40 last December (ultimately it was Vivendi).

The Brussels threat

A sword of Damocles nevertheless hangs over FDJ and very clearly prevents it from returning to its historic highs: the investigation into exclusive rights opened by the European Commission, which was also the origin of the fall in the share price. since July 2021.

As part of its privatization, FDJ paid a balance of 380 million euros to the French State in 2020 in order to maintain its exclusive rights to the physical and online lottery, as well as to sports betting at points of sale for a period of 25 years. The company previously held these rights, which represent approximately 95% of its stakes, for an unlimited period.[ait] 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

substantially lower than a price which could be considered as a market price”. “Also, an advantage for the benefit of the FDJ seems to be present at this stage”, also noted the Commission.

Since then, there has been no sign of life, with no timetable communicated by the Commission. However, this investigation poses a threat to the action, that is to say the payment of a price supplement. In 2022, the Citi bank mentioned more than 1.5 billion euros while the Société Générale analyst, Sabrina Blanc, was more measured, evoking “in the worst scenario” a figure of 1.1 billion euros.

This uncertainty weighs on FDJ stock. A negative verdict from the European Commission would probably weigh down the action. But on the contrary, a positive outcome would probably allow it to take off and therefore get closer to the CAC 40. “It’s heads or tails for them I fear”, estimates the financial intermediary previously cited

“The Commission’s investigation should continue to weigh on the equity story (the story that a company sells to the market to seduce it, editor’s note) of the FDJ with a procedure which could lengthen in the event of an appeal”, warned Oddo BHF last week.