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OPAP | First thoughts: Q3 slightly ahead, fully underpinning FY22e

Quite strong Q3, EBITDA +13% yoy, confident message by management – OPAP has reported quite a robust quarter with revenues +6% yoy and +13% qoq, underpinned by the rich sports calendar and Joker jackpot rollovers which drove further sequential improvement in over-the-counter revenues. The latter settled just 4% lower than pre-COVID levels from -9% in Q2, with our FY estimates conservatively incorporating -9% decline in Q4. Net opex were c€9m lower yoy (partly on account of lower fees), thereby helping OPAP grow EBITDA 13% yoy to €198m, some €7m higher than our number. This filtered through to a c20% increase in net profit to €119m (EEe €112m). Cash conversion was again very robust (OCF/EBITDA >90%), with OPAP delivering >€170m of FCF in the quarter. The latter was absorbed by the €1.4/share cash return paid to shareholders (€389m cash outlay) leading net debt to c€244m from €26m in end June 2022. As we had flagged in our preview, the results affirm OPAP is on track to deliver EBITDA in excess of €700m in the full year (BBG consensus €704m, EEe €707m). The message communicated by mgt (“encouraging momentum to lead to a strong finish for the year”) reinforces our conviction into Q4’22.

Q3 in more detail: retail/online sequentially stronger – Retail revenues registered sequential improvement settling just 4% 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 helped cross-selling and footfall. As for digital, following a somewhat slow Q2, the third quarter was indeed quite strong, with total online revenues +29% yoy (at €125m). Within these, OPAP’s own e-Gambling revenues ought to have increased 30-35%, with Stoiximan growth likely in the 25-28% range. On the cost side, OPAP LFL non-variable opex were down €6m yoy while Stoiximan opex were higher but with the latter appearing to have generated quite a robust EBITDA margin (>25%) and EBITDA >€25m.

2023 outlook: mild re-opening tailwind and online growth – Following a significant bounce in profitability in 2022, driven by the re-opening impulse and the lower cash gaming duty for over-the-counter games, expectations for OPAP’s profit generating capacity have been rebased (EBITDA >€700m). Base effects will be tailwinds in Q1’23 but focus will gradually shift towards online execution. We expect moderating group revenue growth rates of 6%/4% in 2023-24e predicated on 2-digit growth in online and 5%/2% growth in land based games. This will correspond to 6% and 3% growth in group EBITDA over 2023-24e, which will underpin dividends near €1.6 per share during both years, namely quite a compelling 2-digit yield.

Valuation: top pick, renewal optionality – We reiterate our €15.9 PT (SOTP-based valuation of OPAP’s concessions at 7.5% WACC) 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.