EUR 150.00 For Business Accounts Only

OPAP | First thoughts – Q3 in line; eyes on latest COVID restrictions

EBITDA in line in an almost normal quarter; cash flow impressive – OPAP’s Q3 looks broadly in line with our expectation, with revenues (GGR) settling at €470m (+20% yoy) and comparable EBITDA at €117m (+12% yoy), in line with our estimate. Revenues were propelled by the consolidation of Stoiximan (c€83m, 21% contribution to growth). OPAP’s ex Stoiximan business was little-changed yoy, with retail -2% yoy (c4% lower than 2019 levels) and OPAP’s own online >30% higher yoy. Reported (cash) EBITDA, namely including the income related to the prepayment of the GGR duty, came in at €175m, +67% yoy. Net profit was also in sync with our estimates despite the higher D&A, shaping at €96m, +82% yoy. FCF was impressive for second straight quarter – indicative of the cash flow generating capacity of the business post COVID normalization (and in the light of the lower cash gaming duty), with OPAP generating €124m of FCF in the quarter. This was only partly absorbed by the cash dividend (€79m), with OPAP reducing net debt to c€378m from €423m in Q2’21.

Online ramping up – Online revenues jumped to 21% of the mix from just 3% the same period last year. Although the bulk of the incremental contribution came from the consolidation of Stoiximan, OPAP’s own digital offering also rose to €14m from €11m last year. We remind that Digital is at the forefront of OPAP’s agenda, with mgt eyeing OPAP digital (ex Stoiximan) revenues of €240m in 2025 (from €42m in 2020) and 23% EBITDA margin (i.e. EBITDA near €55m) on account of secular growth (online market CAGR +12% through to 2026e) and share gains for OPAP (new offerings, product enhancement etc.).

Going gets tougher in the short term – In Q4, the Greek govt introduced stiffer restrictions, rendering mandatory the display of a negative COVID test (or proof of recovery from COVID or display of a vaccine certificate) for access to retail shops. As of this week though, the curbs have been tightened with access limited solely to vaccinated individuals. Against this background, focus at the conf call (24th Nov at 14:00 UK time; dial-in: UK 3, Greece 0; US ) will be on mgt comments regarding the impact these restrictions might have and potential cost mitigating actions. In the light of the curbs, we believe it is reasonable to expect FY21 EBITDA to shape in the €550-560m area, indicating a low to mid-single digit percentage downward revision.

Valuation: Cash avalanche post COVID – OPAP mgt has committed to a €1 minimum DPS, quite natural given the c€0.6 per share extra FCF boost stemming from the entry into force of the gaming duty regime over the current decade (effectively a lower cash duty payment, given OPAP has prepaid €1.8bn of gaming duty). Our PT (predicated on a DCF-based SOTP of OPAP’s concessions at 7.3% WACC) effectively values OPAP at a still undemanding 8.3x 2022e reported (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.