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OPAP | First thoughts: Results in line, dividend decision pending, liquidity secured, CEO to step down

No major surprises from FY19 – OPAP announced FY results in line with expectations, delivering FY19 EBITDA of €412.6m, in sync with our estimate (cons at €411m). The c17% FY19 EBITDA growth (c15% underlying) was driven by 4.7% growth in revenues (also in line with our +4.5% estimate) and a small decline in non-variable opex. Net profit shaped at €202.4m, a tad below our estimate due to higher financial expenses. FCF generation was robust in Q4 (c€62m), with OPAP delivering total FCF of €215m in 2019. As a result, net debt decreased from €459m in end 2018 to €409m in end 2019 (post a €168m cash dividend). The decision regarding the dividend is still pending (AGM on 25th June), but we now see scope for a dividend payment given the substantial liquidity, assuming activity has resumed by early June. In other news, the CEO will be stepping down at the end of his 4-year contract in May.

Most importantly liquidity has been secured to withstand prolonged shutdown – OPAP’s gross cash position as of end Dec’19 stood at €637m. Following the cash dividend outlay in January (€163m), the bond payment in March (€203m), and FCF generated in Q1’20 (we estimate near €28m), liquidity ought to have dropped close to €300m (namely in sync with our estimate in our latest note “OPAP: COVID-19 scenarios”). However, the company moved quickly to secure additional funding of €325m, thereby boosting its cash reserves to €623m currently (1st April). Given that annual fixed costs are near €220m on our numbers, we estimate this is sufficient liquidity for OPAP to handle a prolonged store closure period comfortably, while also paying the M&A-related consideration, largely de-risking the balance sheet.

Quarterly trading decelerated due to the tough comps – Q4 growth moderated to 1.4% from +6% in the 9M period as OPAP was lapping a tough comp cycling the introduction of new Kino features. We estimate Kino posted a mid single digit drop in Q4’19 compared with a low-to-mid single digit increase in the previous 9M. Sportsbetting was a positive surprise rising 5.7% in Q4, reversing the -5.4% drop registered in the 9M period. Hellenic Lotteries’ revenue performance also improved (+0.8% yoy). VLTs posted a 24% increase, driven by the higher number of machines in operation. Underlying dynamics do not seem to have changed though on a yoy basis.

Monthly EBITDA impact c€50-53m (c12%), in broad sync with our analysis – OPAP has estimated the EBITDA impact at c€50-53m per month of closure. This is in sync with our analysis in our last COVID-19 note. Our stress-testing for various COVID-19 scenarios pointed to 22-66% drop in 2020e EBITDA relative to our current estimates.

Valuation – Assuming no change to risk appetite (WACC of 8.7%), on our estimate OPAP’s intrinsic value is higher than the current price under all three scenarios we examined. Our PT (DCF-based SOTP of OPAP’s concessions) also takes into account the >€2 tax-related value related to the gaming duty prepayment.