EUR 150.00 For Business Accounts Only

OPAP | First thoughts: Firing on all cylinders and handing over €1.4 returns to shareholders (11% yield!)

€200m FCF just in Q4; €1.4 proposed return will please investors – OPAP reported Q4 earnings in line with our expectation (EBITDA €170m, +221% yoy) but with cash flow generation surprisingly strong in Q4 (>€200m) driving net debt below €185m (€529m in FY20). Most importantly, shareholder remuneration has exceeded even the most optimistic estimates, with mgt announcing a €0.50 final dividend topped up by a €0.90 capital return. This corresponds to a yield near 11% and reaffirms our long-standing view about a cash avalanche in the post COVID period. OPAP is a unique case of high cash flow generation and sustainable returns pointing to a double digit yield, with the stock remaining our top pick in Greece.

Q4 results in more detail: sequential improvement, very robust cash flow – Q4’21 was weighed down by a tightening of restrictions as of 22nd Nov, with access to gaming venues limited solely to vaccinated individuals (or those with recent proof of recovery from COVID). On the other hand, the quarter was cycling an easy comp due to last year’s lockdown while benefiting from the consolidation of Stoiximan for a full quarter. Against this background, Q4 revenues rose 116% yoy and 6% qoq. Retail revenues came in 13% below pre-COVID levels and +2.9% qoq, while online increased 18% qoq driven by a ramp-up of OPAP digital and another very robust performance by Stoiximan. Overall OPAP reported GGR of €1.5bn in the full year, 5% lower than 2019 (retail c32% lower than 2019, offset by online and the consolidation of Stoiximan). FY21 EBITDA settled at €550m (EEe €551m), a respectable performance given the challenges faced during the year (Q1 lockdown, gradual tightening of COVID restrictions in Q3-Q4). 2021 was indicative of the ultra-high cash flow generating capacity of the business in the light of the lower cash duty (due to the pre-paid OTC gaming tax through to 2030), with OPAP’s FCF exceeding €435m (c80% conversion).

2022: reopening vs inflation hurdle – 2022 has set the scene for a tug of war. On the one hand, OPAP will benefit from reopening dynamics and the relaxation of COVID restrictions (individuals with negative test allowed again in OPAP’s outlets as of end February). On the other hand, inflationary pressures are piling up and the surge in energy prices will weigh on disposable income, potentially translating to a 1.0-1.5pp hit to GDP. Our model envisages retail revenues remaining c13% below 2019 levels in 2022 while penciling EBITDA growth of 23% yoy driven by reopening (retail comparable EBITDA c12% lower than 2019 levels) and the ramp-up in online.

Valuation: Cash avalanche post COVID – Despite near-term challenges, OPAP is still primed for healthy profit growth (EBITDA +9% in 2023e following +23% in 2022e) as trading normalizes post COVID, something that will continue filtering through to hefty shareholder returns in the absence of significant capex needs. Our PT indicates a still undemanding 8.4x 2022e (cash) EBITDA, just a small premium vs the last 5-year average.