from the 7th of November, individuals can purchase units of the FDJ. An operation tempting, but which deserves to be studied. Decryption in seven key points.

There is certainly more chances to win money by subscribing to the privatization of the Française des Jeux (FDJ), which begins this Thursday, 7 November, as with a Lotto ticket or a scratch card. But should he run for both? The actions of the JDF are not an investment without risk. Decryption.

1. A popular success

With 25 million players and nearly 16 billion euros of updates received per year, la Française des Jeux has a strong awareness among the public, sustained by the enthusiasm of the media. The group distributes 85 games, through 28 500 tobacconists and 1500 other specialised points of sale. With five games “billionaires”, that is to say, it garnered more than a billion euros of bets, such as the Euromillions, the JDF is expected to further progress updates and its turnover by 7% this year to 16.9 billion and about $ 2 billion, and even a 19% growth of its operating surplus.

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The government wants to raise the shareholding and the operation should be a success. The small holders will be entitled to a discount of 2% on the subscription price, with the distribution of a free action for ten held at the end of 18 months.

2. A course supported by the scarcity

The State has announced the sale of 52% of the share capital of the JDF, recently divided into 191 million shares, or 99,32 million shares. 10% of the shares are reserved for employees, and tobacconists will also be privileged. The State wishes to reserve one-third of the shares to individuals. Given the range of courses offered – between 16,50 and 19.90 euros -, the request of small shareholders will certainly be greater than the supply.

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It is this difference that will help to set the subscription price. It will be known definitively only at the end of the offer on 21 November. in The price is not known in advance, investors will have to apply for a fixed amount of 200 euros, for example 1000 euros, which may be reduced to the finish. The unmet demand will likely lead to a phenomenon of scarcity, which should support the price, buyers supplementing their investment during the first sessions of quotation to have the amount they wanted.

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3. Dividends and repurchases of shares in the buff

The FDJ “has for objective to distribute dividends representing 80% of its consolidated net income in the period 2020-2025,” can it be read in its registration document with the Autorité des marchés financiers (AMF). The 122 million euros of dividends distributed in the last year would represent a dividend of 64 cents per share today.

If it had paid 80% of its earnings, its dividend would have amounted to 71 cents dividend per share which is a yield 3.6 % to 4.3 %, depending on the price range announced . A superior performance to the average of the actions that yield around 3% dividend per year.

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in addition, the general assembly of November 4, 2019 approved a share repurchase plan, which should also help to support the price. This plan allows the company to repurchase 10% of its shares to the maximum, or nearly 20% of the outstanding securities in the public, at a price of up to 50% more than the first quoted price on Euronext on the 21 November. But in the long term, this investment is not without risk.

4. Station care expenses

Many savers will discover, or rediscover, the stock investment to the opportunity of privatization, including its share of costs, among which the famous custody rights taken by most of the networks of bank branches, that is to say, of the commissions held in a securities account or a share savings Plan (PEA). “These are fixed by the banks and the intermediaries with whom we have no partnership in order to exonerate the actions FDJ custody costs”, explains the company.

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The subscription of the shares will be free, but keeping them may cost expensive compared to the amount placed, especially in the case of a strong reduction of the demands. To avoid these costs, investors must make their subscription through an online broker without custody rights, rather than by their bank.

5. Smaller and less profitable than it looks

The campaign of communication ahead of the operation has put in before the weight of the JDF, with its 16 billion of bets of the players, but without any mention of the profits of the company. The latter is a medium-sized company, with a turnover of around € 2 billion expected this year. Its profits were 170,4 million last year, down 5.7% compared to 180.7 million of earnings recorded in 2017. This decrease in profitability is mainly explained by the fall in financial income, partly related to the devaluation of the investment portfolio of the JDF, in the wake of the stock-market turmoil at the end of 2018, and in part to the indebtedness of the group to purchase its headquarters. In the end, the benefits 2018 to account for less than 1 euro per share.

6. A market that is more competitive

The lottery companies from the country, which were formerly a monopoly, unshakable, will evolve in the future with more competition. The law Covenant has spared a few privileges to the JDF, but not free, or forever. In the context of its privatization, the company is “holder of the exclusive rights for its activities of lottery games (draw, instant) marketed in retail outlets and online and sports betting marketed in retail outlets,” stated in the reference document. Only online sports betting are now open to competition. The law Covenant has fixed the duration of these privileges for 25 years, in consideration of a payment to the State for 380 million euros, as early as next year.

abroad, the competition is fierce as evidenced by the fate of the main rival of the JDF, International Game Technology (IGT). Diverse in fifty States, mainly in the United States, and owner of the national lottery, Italian, Lottomatica, IGT had sales of $ 4.8 billion in 2018, more than two times higher than the JDF, and a gross operating surplus (Ebitda) more than four times (to $ 1.4 billion last year), only the dividend is comparable, to 80 cents.

After two years of losses, IGT has seen its share plunge by over 50% since the start of 2018. At 13 dollars, it is valued $ 2.7 billion, a level lower than that of the French Games (between 3.1 and 3.8 billion euros according to its final price). But its dividend provides a yield of 5.7%, which is more competitive than that of the FDJ.

7. An investment is shunned by socially responsible investors

If many institutional investors should show interest in the privatization of the JDF, its shares will not have the support of a growing number of funds practicing socially responsible investing (SRI). Their strategy is to prioritise the companies to be more virtuous and to avoid some of the industries that are considered immoral or harmful, such as arming, but also tobacco, alcohol or gambling. Even if it is presented as a company “efficient and helpful at all since 1933”, la Française des Jeux is therefore likely to be shunned by many SRI funds.

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In summary, the privatization should be a success, but the action will not be risk-free subsequently.