Betting on France’s Gambling Monopoly
Sacré (Red, White and) Bleu! La Française des Jeux
How would you like to invest in an actual monopoly? Not a business you think is a monopoly, but a real life, actual government-supported monopoly. What if this monopoly is an asset light business that is growing nicely with virtually no debt? And what if when the economy shut down during the early stages of the COVID pandemic, this business broke even and when things partially re-opened one month later business was back to normal? What if you could buy it at a 5% free cash flow yield and growing? And further, what if comps trade at much, much higher valuations such as 40 times 2024 EBITDA? Sacré bleu, can this even be a real investment opportunity?!
Well, let me introduce you to La Française des Jeux (Paris: FDJ 34.96), France’s national lottery and sports gambling monopoly, that remarkably no one outside of France is paying any attention to. This extraordinary business was privatized by the French Government via an IPO in late 2019 and is simply one of the best risk/reward investments I have ever come across.
With French government bonds generating negative interest rates, an investor can buy what is effectively an arm of the French government (a lottery is effectively a tax), with a fast-growing sports gambling business, a shareholder-friendly management team, a healthy dividend, and at a completely mis-priced valuation.
As investors realize how resilient the business is, how COVID has actually made the business more profitable, and the stock starts trading closer to valuations commensurate with other gambling stocks and other monopolistic businesses, FDJ’s stock has the potential to increase by over three times in the next few years. Vive la France!
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