Analysts at Deutsche Bank lowered their target prices on bookmakers 888 Holdings and Flutter on Monday as it looked at the impact of a longer than initially expected high interest rate cycle on the European leisure sector.
Deutsche Bank dropped its target price on 888 from 296.0p to 230.0p and cut its target on Flutter to 13,500.0p from 13,820.0p but reiterated its ‘buy’ rating on both stocks.
Justifying its move, DB noted that central banks across the developed world were now looking to fight the inflation battle, with markets now seeming to suggest that we are in a higher interest rate cycle for longer than earlier envisaged.
“We consider the impact on income statements (on FY’23e net income), given the higher cost of debt (after considering hedges in place), as well as on valuations (where we use a DCF), with an increase in WACC as the outcome,” said the analysts.
However, what the German bank said was not in the analysis was any adverse impact on demand, from higher interest rates squeezing disposable incomes as, at this stage, pubs have been the only subsector to identify any material impact from weakening consumer spending.
“The rise in interest rates will impose further pressure on discretionary spend, and we will continue to monitor these pressures and discuss the potential impact in future research notes,” said DB.
Reporting by Iain Gilbert at Sharecast.com
