(News Bulletin 247) – Deutsche Bank raised its recommendation from “hold” to “buy” on Tuesday on the shares of the gambling and gaming specialist, while Bernstein, for its part, initiated its monitoring at “outperform”.

Is it time to bet on FDJ again? Deutsche Bank responded in the affirmative on Tuesday. The German institution went from “hold” to “buy” on the shares of the gambling and chance group, which was listed on the stock market in 2019. The bank also raised its price target to 38 euros from 42 euros previously.

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Deutsche Bank’s change of opinion is motivated by the acquisition of the Swedish group Kindred, owner of Unibet, by FDJ. Announced in January 2024 for an enterprise value of 2.6 billion euros, this operation was appreciated by the market. The transaction should allow FDJ to accelerate both its internationalization and the digitalization of its activity, with a relutive (positive) impact on its net profit of more than 10%. The Oddo BHF research office also expected annual synergies of around 80 million euros.

Deutsche Bank noted on Tuesday that in the online gambling sector, companies that acquired other groups recorded a significant increase in their profits. The acquisition of Kindred by FDJ is somewhat “slow” for the bank, as the group has not yet obtained the green light from the French competition authority. But the German institution expects the process to be completed by mid-November.

On the Paris Stock Exchange, the FDJ share price climbed, gaining 2.2% around 12:10 p.m. Beyond the day’s session, the share price gained 14.3% over three months, largely outperforming its benchmark index, the SBF 120 (-4% over the period).

A price increase that is no coincidence

Deutsche Bank’s change in recommendation is just the latest catalyst in a great run for FDJ.

The group notably published half-yearly results that were well received by the market (the share price rose 8.2% following the publication of its accounts). The higher-than-expected activity had notably benefited from the many failed bets by players during the Euro 2024 football tournament.

Management also expressed some optimism regarding the decision of the European Commission, which opened an investigation in July 2021 into the award of exclusive rights to FDJ on physical and online lottery, and on physical sports betting. These rights were granted by the government to the company for a period of 25 years in exchange for €380 million.

The European Commission is investigating whether this transaction, carried out as part of the group’s privatisation, did not provide an undue advantage to the company. The European Commission’s verdict has been slow in coming, which has prevented FDJ shares from taking off. The market fears that it will result in a significant price supplement for the group (Citi Bank was talking about more than €1.5 billion in 2022).

But at the end of July, the company’s management indicated that it “remained confident” and hoped for “a decision before the change of team within the European Commission which would take place by the end of the year”.

Bernstein is confident

A few days before the company’s results were released, Bernstein had initiated its coverage at “outperform” on the stock.

The bank highlighted various advantages offered by the stock, including its low exposure to macroeconomic risks, its good track record in terms of innovation and development in digital technology and its recent internationalization in online gaming, enabled by the acquisition of Kindred.

Certainly, there are risks of regulatory changes in the Netherlands, Kindred’s largest country with 20% of its revenues, but FDJ is used to navigating through these risks and discussing with regulators, argues Bernstein, who believes that this subject is part of FDJ’s “DNA”. And the operation is worth the effort. Even if FDJ were to exit the online casino business in the Netherlands, where the risks are concentrated, the transaction would still result in an 8% accretion of earnings.

And, regarding the potential verdict from the European Commission, Bernstein decided not to integrate the impact of the price supplement into its model, which shows that the financial intermediary is optimistic about Brussels’ decision. Especially since the Council of State had ruled in April 2023 that the exclusive rights were in compliance with European law. But in the event that Brussels were to render an unfavorable decision for FDJ, Bernstein estimates that this price supplement would reach a maximum of 368 million euros, far from the 1.5 billion euros mentioned by Citi in 2022.