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OPAP | First thoughts: Q4 in line, €0.45 DPS a positive surprise

EBITDA in line, cash flow healthy, cost curtailment continues – OPAP’s results look broadly in line with our expectations, with Q4 revenues down -48% yoy (in sync with the -53% in Q2) due to the lockdown, and comparable EBITDA (excl. income related to the concession extension) at €10m (similar to the €16m in Q2). Cost curtailment helped limit the deleveraging effect (LFL opex -6% in Q4). Overall, FY20 ended with OPAP suffering a 30% revenue decline and a 47% drop in comparable EBITDA, quite reasonable in the context of the 4.5-month lockdown. Below EBITDA, numbers were propelled by a €143m positive effect from the remeasurement of the 36.75% stake held in Kaizen’s GR/CY operations. As a result, FY20 net profit shaped at €205m, +1.5% yoy. Notwithstanding the challenges and a >€150m M&A related outlay, OPAP managed to generate positive FCF in the year, with net debt shaping near €529m (vs €419m in 2019). On the dividend, mgt eventually opted for a €0.45 DPS, higher than our estimate, and we believe that of most market participants’ too. In the light of the potential store re-opening in the coming days, we actually believe it is reasonable to expect the dividend to be further topped up at the AGM in June (by another €0.20-0.25).

Kaizen full consolidation and lotteries duty arbitration – Full consolidation of Kaizen’s GR/CY operations started in December and the Q4 online performance of OPAP group (€56m GGR) points to a very solid performance. In other news, OPAP has initiated an arbitration process regarding the gaming duty for Hellenic Lotteries, arguing that the lockdown constitutes a force majeure event, and in that regard the €50m minimum annual duty should not apply for 2020. In our view this is a reasonable claim and the request for arbitration reflects OPAP’s intention to safeguard its legal position rather than enter into a conflict with the state.

State of play – Q1’21 saw OPAP operate at c25% of normal capacity on EEe, with the Greek network remaining suspended after the last round of restrictions in March. For FY21, we see organic (ex-Kaizen) revenues shaping c17% lower than pre-COVID levels, with performance bouncing back in H2 (+54% yoy, 11% above pre COVID levels) following a soft H1 (-19% yoy). This will translate in organic 2021 EBITDA coming in c23% below pre-COVID levels. For 2022 we conservatively assume comparable org. EBITDA still c10% below pre-COVID levels. We remind that, given the €1.8bn gaming duty prepayment, OPAP is liable for a cash gaming duty of just 5% on revenues from legacy games (c€1bn) as opposed to a 30% P&L duty. On that basis, OPAP’s cash (reported) EBITDA will be rebased by some €200m (to >€600m post Stoiximan consolidation), translating to FCFE of >€500m post return to normality.

Valuation; c12-13% sustainable dividend yield post COVID – Our PT is predicated on a DCF-based SOTP of OPAP’s concessions (8.2% WACC), implying an undemanding c8x 2021e reported (cash) EBITDA. With FCFE poised to exceed €500m post COVID, we expect hefty shareholder returns in the future (c12-13% yield), reiterating OPAP as a top pick and as one of the most attractive names to play the re-opening theme.