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OPAP | First thoughts: EBITDA 7% above our estimates, €0.30 interim DPS ought to please

Healthy execution, results and cash returns above expectations – OPAP has released Q2 results c7% ahead of our estimates at operating level, while mgt’s proposal for a €0.30 DPS also exceeds our expectations (€0.20) and ought to please investors as it comes just a few weeks after the distribution of €1.4/share related to FY21. In short, Q2 saw: 1) revenues grow 12% yoy (easy comps for retail) and retreat 3% qoq as a result of the poor sports calendar; 2) EBITDA increase 16% yoy at €167m, some 7% ahead of our €156m estimate on account of better cost containment; 3) net profit settle +12% yoy at €79m, despite a €19m impairment charge relating to Hellenic Lotteries; 4) FCF reach c€115m, translating to c70% conversion; FCF was partly absorbed by a €100m payment related to Stoiximan earnout, but with OPAP still managing to lower net debt by €13m qoq to just €26m. We believe the results underpin a FY22 EBITDA in excess of €700m, which is in sync with consensus.

Q2 in more detail: retail c9% below pre-COVID levels, online sequentially softer due to poor sports calendar; 16% yoy EBITDA growth – Yoy comps for retail are meaningless (with OPAP cycling shop closures until April-May last year for betting outlets and VLT shops respectively), but relative to pre-COVID levels retail operations retraced closer to normality settling c9% below the 2019 mark vs -11% in Q1’22 and -13% in Q4’21) helped by the easing of restrictions which seem to have propelled performance of VLTs (+5% vs 2019) and numerical games. On the other hand, digital revenues settled -11% lower yoy at €95m (and -10% qoq) due to the tough comp and the drag from the poor sportsbook calendar. Overall, group revenues (GGR) amounted to €442m, +12% yoy and just -3% qoq. On the opex front, non-variable opex (excl. Stoiximan) were actually down yoy thus leading reported (cash) EBITDA at €166.9m, +16% yoy (and higher than the 12% revenue growth) and -1% qoq. Net profit settled at €79xm vs €70m in Q2’21 (+12% yoy) weighed down by the aforementioned impairment charge.

Valuation: renewal optionality – In March 2022 management had guided for EBITDA of €720-740m in FY22e, later suggesting (at the Q1 call) that the low end of the range was still feasible despite the negative backdrop precipitated by the war in Ukraine. Consensus median is currently in line with our estimate (€714-715m) and we believe that a number in excess of €700m is still achievable given resilient current trading, barring any unforeseen and significant deterioration in the macroeconomic environment (e.g. full cut-off of gas supplies in the winter). Besides fundamentals, we recently initiated a debate on licence renewal optionality estimating that only c35% of the value related to renewals/terminal values of OPAP’s concessions is embedded in the current share price, leaving c€4 as optionality, corresponding to c30% upside vs spot levels. Our PT (DCF-based SOTP of OPAP’s concessions at 7.3% WACC) effectively places the stock at 8.7x 2022e EV/EBITDA. We reiterate OPAP as one of our top picks in Greece.