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OPAP | Heads up – Q4 preview: sequential improvement with dividend flavor

Trends not to surprise; poised to deliver on dividend promise – OPAP will release Q4 results on 22nd March (post market). With Q4 trends looking sequentially slightly better than those in Q3’21 (low single digit qoq increase in OPAP retail), we believe results themselves are not likely to move the needle. Most importantly, given our estimate for very strong FCF generation in the quarter (with OPAP delivering >€300m FCF in the full year), we expect management to announce a final dividend of €0.95-1.0 per share. This would bring the total DPS to €1.05-1.10 for the full year (including the €0.10 interim DPS), in sync with mgt’s commitment for a minimum DPS of €1.0.

Q4 results in more detail: sequential improvement, but restrictions diluting performance – Q4 yoy comps are pointless, since OPAP is cycling last year’s lockdowns. That being said, we remind that trading in 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). As a result, we model retail revenues c15% lower than pre-COVID levels (with VLTs affected the most) offset by a ramp-up of OPAP digital and ongoing strength in Stoiximan. We thus estimate group GGR of €492m in Q4, more than double the level of Q4’20 and +4.5% qoq. Overall we expect OPAP to finish the year with GGR of €1.5bn, 5% lower than 2019 (retail c32% lower than 2019, offset by online and the consolidation of Stoiximan). On the profit front, we see EBITDA settling at €171m in Q4, slightly lower qoq due to a seasonal increase in marketing. This will bring FY21 cash EBITDA near €551m, a respectable performance given the challenges faced during the year (Q1 lockdown, gradual tightening of COVID restrictions in Q3-Q4).

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. Against this background, we have lowered our 2022e EBITDA by c3%, but have made little changes post 2023e at this point. Our model now assumes retail revenues remain c13% below 2019 levels in 2022.

Valuation: Cash avalanche post COVID – Despite near-term challenges, OPAP is still primed for strong profit growth (EBITDA +23% in 2022, +9% in 2023) as trading normalizes post COVID, something that will filter through to progressive shareholder returns (DPS >€1.15 post 2022) in the absence of significant capex needs. Our PT stays unchanged (€14.7), predicated on a DCF-based SOTP of OPAP’s concessions at 7.3% WACC indicating a still undemanding 8.4x 2022e (cash) EBITDA, just a small premium vs the last 5-year average. With OPAP offering attractive growth prospects, exposure to re-opening and a 2-digit dividend yield, we find the risk/reward profile quite compelling, reiterating the stock as one of our top picks.