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OPAP | Delivering well; Q3 EBITDA poised for 9% growth

Quite a healthy Q3 – OPAP is due to release its Q3 results on 22nd November. We anticipate quite a robust quarter with revenues +4% yoy and +11% qoq underpinned by the rich sports calendar and Joker jackpot rollovers, which ought to have driven further sequential improvement in over-the-counter revenues (c5% lower than pre-COVID levels vs -9% in Q2). Assuming net opex slightly lower yoy, we estimate EBITDA of €191m, +9% yoy. This will filter through to a c17% yoy increase in net profit, which will settle at €112m on our numbers. On the cash flow front, in the absence of significant capex we expect very solid FCF conversion, with OPAP delivering €139m of FCF. The latter will be absorbed by the €1.4/share cash return paid to shareholders (final DPS of FY21 along with capital return) leading net debt to c€273m from €26m in end June 2022. We expect the results will affirm OPAP is on track to deliver EBITDA in excess of €700m in the full year (BBG consensus €702m).

Q3 in more detail: retail/online sequentially stronger; 9% yoy EBITDA growth – Yoy comps for retail have normalized, with OPAP stores fully operational. We thus expect sequential improvement for land-based games, with retail revenues settling c5% lower than pre-COVID levels vs -9% in Q2. Underpinning the retail performance were the richer sports calendar along with the Joker jackpot rollovers, which ought to have helped cross-selling and footfall. As for digital, following a somewhat slow Q2, the third quarter seems to have been quite strong (as indicated by the 37% market growth in July-Aug), with our numbers modelling c24% growth for OPAP (to €118m). On costs, we model an increase in OPAP LFL non-variable opex (as marketing spending was depressed in Q3’21) offset by a curtailment in Stoiximan opex. This will lead to group EBITDA of €191m on our estimates (+9%). Within this amount, we anticipate Stoiximan to have contributed €25-26m on >25% margin (similar to Q1’22).

Recalibrating estimates; still eyeing FY22 EBITDA >€700m – In the light of persisting pressures on disposable income, we have trimmed our FY22e slightly (EBITDA -1%), but still expect OPAP to deliver EBITDA >€700m in the full year (we land a tad above consensus at €707m). This is testament to the resilience of the business model (franchise-based) thanks to the habitual nature of gambling, which means OPAP is well-placed to navigate a period of slowing discretionary spending. Our updated 2022 forecasts assume that Q4 retail revenues settle c8% below pre-COVID levels, Q4 online grows similar to Q3 on a yoy basis underpinned by World Cup while Q4 EBITDA growth slows to c6% yoy (from 9% in Q3e) due to higher opex (e.g. marketing).

Valuation: top pick, renewal optionality – The marginal reduction in our 2022e along with a slight increase in our WACC (to 7.5%) are offset by the rolling forward of our valuation to end 2023. We thus reiterate our €15.9 PT (SOTP-based) and Buy rating, while keeping OPAP in our top picks. Besides fundamentals, we recently initiated a debate on licence renewal optionality estimating that only c30% of the value related to renewals/terminal values of OPAP’s concessions is embedded in the current share price, leaving >€4 as optionality, corresponding to >30% upside vs spot levels.