(News Bulletin 247) – The shares of the gambling specialist fell sharply this Thursday as the company revealed growth in the first quarter in line with its objectives but lower than the expectations of several research offices.

If the various company publications are rather well received on the stock market this Thursday, this is not the case for FDJ. The specialist in games of chance and money listed on the stock exchange since 2019 dropped 3.6% around 3:15 p.m., after publishing its activity for the first quarter.

The company generated revenues of 710 million euros over the first three months of the year, up 7% on a reported basis and up 1.1% excluding scope effects. The group explains that this progression is “in line” with its projections, with FDJ expecting to achieve growth of around 8% this year in published data.

But revenues are nevertheless a little lower than the expectations of Stifel and Oddo BHF, which expected respectively 725 million euros and 759 million euros.

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In detail, the lottery in France recorded growth of 1.4% in the first quarter. Excluding the impact of Amigo, a game whose formula the group redesigned to make it less addictive at the request of the National Gaming Authority, the increase in lottery games would amount to 4%, explains the company.

Sports betting and online games in France saw their revenues grow by 9.5% in published data and by 0.9% excluding currency effects. Revenue was supported by the integration of ZEturf, a horse racing betting site whose acquisition was finalized in November by FDJ.

The group specifies that online games alone recorded growth of more than 30% to 100 million euros, allowing this segment to represent around 15% of revenues.

A nuanced risk in the Netherlands

Beyond the turnover, several analysts in their note this Thursday underline that the company faces a regulatory risk in the Netherlands.

“A series of motions have been tabled to ban online advertising, introduce limits on customer deposits or even ban “high-risk” gambling such as slot machines,” Stifel points out. These potential changes voted in the Netherlands concern “the ban on advertising for online games and the ban on offering risky games (notably slot machines)”, corroborates Oddo BHF.

Certainly, FDJ is not currently directly concerned by this regulatory threat. But that would not be long in coming: in January, the company announced the planned takeover of the Swedish Kindred, owner (in particular) of Unibet, for a company value of 2.6 billion euros. This operation must be finalized at the end of the year.

However, Kindred is the market leader in the Netherlands, its first country, which constitutes more than 20% of its gross gaming revenue and where market growth is projected at 11% per year over the period 2023-2027.

Contacted by News Bulletin 247, FDJ provided several elements of context. The vote by Dutch parliamentarians concerns motions, which, despite the vote, must be examined by the government “to see if they can be transformed into legislative proposals”, recalls the company.

The group also points out that the Dutch Minister of Legal Protection has spoken out against both a total ban on online advertising as well as a ban on “high-risk” online games, such as slot machines.

FDJ also explains that a total ban on “high risk” gambling would constitute a “step backwards” which would be “surprising” because it “contradicts the objectives of fighting against illegal operators and protecting players”. As for the potential ban on advertising, “recent examples in Europe clearly show that such a decision strengthens the market leader(s) (and therefore Kindred-Unibet in the Netherlands)”, recalls the company.

Brussels as a threat

Furthermore, Stéphane Pallez, CEO of FDJ, declared Wednesday evening in the group’s press release that the company was “pursuing, with confidence, the Kindred acquisition project”.

FDJ therefore greatly qualifies this regulatory risk in the Netherlands. However, this element adds to another sword of Damocles: the investigation into the exclusive rights of the European Commission.

Brussels opened an investigation in 2021 into the allocation by the French state to FDJ of these exclusive rights to the physical and online lottery as well as to sports betting for a period of 25 years in exchange for a balance of 380 million euros. The European Commission is investigating whether this operation, carried out as part of the privatization of the group, did not provide an undue advantage to the company.

The European Commission’s verdict has been a long time coming. The market fears that it will result in a significant additional price for the group (the Citi bank mentioned more than 1.5 billion euros in 2022). This uncertainty undermines visibility on FDJ shares and has handicapped the action for almost three years.

“While the European Commission’s decision, which hitherto penalized the stock, could arrive at the start of the September school year and restore visibility, another regulatory risk appears in the context of the acquisition of Kindred with the tightening mentioned in the Netherlands”, analyzes Oddo BHF.

Even if FDJ therefore affirms its desire to finalize the acquisition of Kindred, Stfiel also points out this risk linked to the takeover of Kindred. “We recognize that regulatory issues could continue to cloud the ‘equity story’ (the story a company tells to the market to seduce it, editor’s note) of FDJ, now fueling speculation on the feasibility of the Kindred operation, worsened by the fact that there is still no news of the investigation by the European Commission”, judges the bank.