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OPAP | First thoughts: Healthy finish to the year as expected; cash returns surprise positively again with another €0.85

Q4 revenues back to growth; FY23 recurring EBITDA flattish yoy at €744.9m, above the latest guidance, in sync with our estimates – Following a rather subdued Q3 due to adverse sporting results, the situation reversed in Q4’23 as we had suspected, with sportsbook margins normalizing (as echoed by other bookmakers), thus underpinning a return to positive top line growth (Q4 GGR +7.5% at €581m, with retail +2% and online +25%). The increase in the top line (to an all-time record) was more than offset by opex inflation, thus leading Q4 adj. EBITDA to €198m, -3% yoy and in line with our estimate. Overall, for FY23 OPAP generated c€745m adj. EBITDA (flat yoy, in symphony with our numbers), effectively delivering on the initially guided €740-760m range and beating the €720-740m guidance as revised at the Q3’23 call. Below the EBITDA line, there are several one-offs including a €6.3m impairment, higher financial charges (relating to the Hellenic Lotteries litigation) and an elevated tax rate in Q4. These weighed on reported net profit which settled at €408m (EEe €423m). On an adjusted basis though, 2023 net profit shaped at €439m, +0.7% yoy in line with our projection (€441m). Cash flow generation was robust, with OPAP delivering another >€50m FCF in Q4 which partly offset the €368m cash returns. As such, OPAP ended FY23 with net debt of €170m. Management has also provided guidance for FY24, calling for EBITDA of €750-770m, with consensus being at the high end (we are a bit higher at €784m).

Let the free cash flow; another hefty return with €0.85 set to be distributed to shareholders – Following €1 per share paid as interim dividend, OPAP announced a final dividend of €0.60 topped up by a €0.25 capital return. The latest round of cash returns amounts to another 5% yield, thereby bringing the total shareholder remuneration for FY23 to €1.85 and validating our long-standing thesis for OPAP being a sustainable high-yielding cash return story. We expect OPAP to continue to have in place a compelling distribution policy, with dividends set to exceed c€1.5/share in FY24e as well.

2024 outlook: 1-4% growth guidance – Since the new gaming duty regime came into effect (Oct 2020 until 2030) OPAP’s EBITDA generating capacity has been reset to c€740-780m on our numbers, with 2022 and 2023 landing at the low end of this range due to different reasons (COVID effect in 2022, low margins and inflation in 2023). Looking to 2024, OPAP has several levers to pull to drive top line growth including ongoing product revamp (Joker/Lotto rejuvenation, Eurojackpot rollout), online penetration and player activation. Mgt envisages EBITDA growth of 1-3.5% in FY24, affirming our view that growth avenues have started to look more scarce and largely hinge on product revamp.

Valuation – We value OPAP via a SOTP of its concessions predicated on 7.6% WACC. Our PT implies a 2024 EV/EBITDA of c8.4x, modest premium vs OPAP’s historic avg but still discount vs best-in-class peers. We continue to find the case compelling arguing the stock resembles a high yield bond with IG fundamentals offering coupon-like yield of c10% and price appreciation potential from re-rating and licence renewal optionality.