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OPAP | Cash avalanche post Covid

How big will shareholder returns be post COVID normalization? How much could the over-the counter licence renewal cost in 2030? How soon could the main shareholder reach a 50% stake via the scrip dividend program?

Our new deep-dive note on OPAP seeks to address all these questions, reiterating the name as a top pick ahead of an anticipated “cash avalanche” for shareholders in the coming years.
1. On shareholder returns, we argue that OPAP’s underlying cash flow generating capacity post COVID normalization is >€500m, though 2021-22 figures will be weighed down by Stoiximan earnouts and the persistent COVID impact. Even post earnouts to Stoiximan, we expect group FCF of €360-560m in 2021-23, translating into a DPS in the €1.3-1.6 range, a hefty c12% average yield. In fact, OPAP’s scrip dividend program facilitates the continuation of a high-divi policy, since Sazka’s participation in the reinvestment program will limit the actual cash outlay. Given the extra headroom created by the reinvested dividends, we see room for special dividends up to €3.7 per share if OPAP were to remain at net debt/EBITDA near 2x in 2022e. We thus see scope for total 2-3 year cash returns to reach c50% of the market cap.

2. Main shareholder - The path to 50%: The scenario of hefty dividends would also accelerate the main shareholder’s path to 50% by 2022, something which would be in sync with Sazka’s stated ultimate goal. As we show in our note, assuming full reinvestment by Sazka of all dividends through to mid 2023e (€3.1), the latter would increase its stake to c48.5% by 2023, while reaching 50% under a scenario of special dividends.

3. Let’s talk about licence fees: Although we are still 9 years prior to the expiration, we have looked at several past licence renewal cases internationally in order to gauge what a reasonable renewal cost might be. Our findings suggest that OPAP can build enough capital to fully fund the potential licence upfront fee through cash flow generated solely by its OTC concession over 4 years. Alternatively, it would require just 2 years of FCF at group level in order to build the necessary capital to fund the OTC renewal cost. On that basis, we see no reason why OPAP will not distribute the bulk of group FCF (or more) over the coming years.