FREE

OPAP | Cashing in, moving to Hold

Strong play, but limited new aces up its sleeve, for now – OPAP shares have had a robust start to 2025 returning c11% ytd, fueled by a strong H2’24 operational performance driven by both recurring (strong online/sports betting trends) and non-recurring (e.g. jackpot rollovers) factors. Although the better execution is set to lead FY24 EBITDA c2% above our previous projection and >4% above the upper end of mgt expectations (€750-770m guided range), it also sets a high bar for 2025. The year does look primed for a strong start, but we feel that catalysts are rather scarce, with comps only set to become tougher as the year progresses. With the price now leaving limited upside vs our PT, we are moving to a Hold rating. In our view, the next leg higher can be catalysed solely once there is visibility regarding the renewal of OPAP’s core concession (50% of group GGR, expiring in 2030). Our numbers pencil in a €0.9bn renewal cost, assuming the 10-year renewal value is equally split between OPAP and the state.

The online debate: can this drive material growth at group level? – Investor discussions have increasingly centered on OPAP’s online growth and whether it can materially impact group-level performance. This is the case especially in the light of the >25% growth for the overall online market in Q2-Q4 2024, of which >50% is accounted for by OPAP (own digital + Stoiximan). Although we do expect channel migration to continue, we caveat that this is at the expense of some land-based verticals (e.g. Kino being cannibalized by online casino), while online growth in absolute terms is mainly driven by Stoiximan (from which there is minority leakage) rather than OPAP digital. In addition, with online still c30% of the revenue mix, we cannot see how top line growth at group level can exceed a low single digit %, unless the economy grows materially >2% and consumer spending shifts further toward gaming. On our numbers EBITDA will be flattish in 2025e while growing in the low single digits thereafter.

Let’s talk about the renewal – As we have been contending a while now, investors should not treat the current FCF level as perpetual cash flow stream, due to: 1) the ultimate debasement of FCF post 2030 assuming the OTC cash game duty normalizes; and 2) the time decay of the core OTC concession value as it approaches expiration (2030). In our view, securing visibility on the extension of this concession is pivotal to the investment thesis, particularly with just 5.5 years remaining on the licence. The upcoming expiration of the HL concession in April 2026 could serve as a trigger for early negotiations between OPAP and the state on both concessions. Based on our estimates, every additional 5% of the 10-year core concession value (2031-2040) retained by OPAP, rather than accrued to the state, adds c€0.17 per share to our valuation.

Valuation; high single digit dividend yield, but less scope for capital gains – We still value OPAP via a SOTP of its concessions based on 7.3% WACC. Our PT implies a 2025 EV/EBITDA of c8.5x, modest premium vs OPAP’s historic average justified by the better cash generation profile until 2030. In essence, the stock resembles a high yield bond with IG fundamentals offering high-single-digit yield for an earnings stream that is low risk until 2030, but with scope for capital gains hinging on the licence renewal terms of the core concession.