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OPAP | First thoughts: Results a bit ahead, €0.30 DPS ought to be well-received

EBITDA drop contained to 24%, on cost containment – OPAP announced Q1 results just a tad ahead of our expectations, delivering EBITDA of €86m. The 23.6% yoy drop in EBITDA was driven by a 17% decline in revenues (in line with our projection) as a result of the 15-day lockdown (with 2-month GGR up in the low to mid single-digits). The revenue fall was partly offset by cost containment (non-variable opex down c€6m on our estimate) and an increased contribution by Stoiximan (c€3.2m swing yoy). Net profit shaped at €35.5m, -38% yoy weighed down by the decline in operating profit and higher financial expenses (due to increased gross debt).

Healthy FCF and comfortable liquidity; €0.3 final DPS – FCF generation was healthy, especially taking into account the fewer trading days, coming in at €35m vs c€40m in Q1’19, underpinned by working capital management (and a dividend from Stoiximan). Following the €170m dividend payment, net debt increased €137m qoq to €556m. Most importantly, the group’s liquidity position stood at €422m as of end March. As announced at the FY19 results in early April, cash reserves were further bolstered on 1st April to €623m. In the light of the resumption of trading in OPAP’s outlets, the BoD has decided to propose a final dividend of €0.30 per share (EEe €0.20-0.25).

State of play – OPAP’s outlets resumed operations on 11th May, albeit offering a limited range of betting events (given the cancelled or suspended fixtures). Meanwhile, several restrictions remain in place with respect to the number of people per sqm, sitting arrangements etc. Such restrictions are likely to have weighed on the performance of frequent draw games like Kino (c37% of revenues) post the lockdown easing. As far as VLTs are concerned, these remained suspended until early June, resuming operations just recently (8th June). Clearly, focus at the conference call tomorrow (Dial-in: UK 3, Greece 0; US ; Other International 2) will be on trading run rates after the opening, with anecdotal data in the broad retail sector leaving some room for optimism. We will also be looking for granularity regarding cost mitigating actions and the extent of cash burn in the two months to end May.

Outlook and valuation – Our recently updated estimates assume no return to normality in H2, as we expect social distancing to continue weighing on footfall in betting outlets. On that basis, post an assumed c68% revenue drop in Q2, we envisage a 13% decline in organic revenues in Q3 followed by a 5.5% reduction in Q4, driving a 25% drop in revenues in the full year of 2020. Our PT is predicated on a DCF-based SOTP of OPAP’s concessions using an 8.9% WACC, while also taking into account the >€2 tax-related value related to the gaming duty prepayment.