EUR 300.00 For Business Accounts Only

OPAP | Growth, reopening, yield – Buy

Normalizing over-the-counter trends (re-opening) – Following a somewhat tumultuous period due to the lockdowns, OPAP’s land-based business returned to c76% of pre-COVID levels in Q2’21, with recent run rates pointing to almost full normalization. Although the digital push (as outlined below) is likely to cannibalize – at least to an extent – the retail business, the re-opening of OPAP’s shops along with self-help actions (e.g. launch of OPAP store app) and punters’ natural willingness to socialize are likely to mitigate the channel shift effect. Our numbers now conservatively assume that retail remains c4-7% below pre-COVID levels in Q3/Q4 2021 and c9%/5% lower than the respective 2019 level in 2022-23e.

Accelerating online (growth) – Online seems to be at the forefront of mgt’s agenda and set to become a key avenue of growth. Mgt has set quite optimistic targets for OPAP digital, both in terms of top line (revenues from €42m in 2020 to €240m in 2025) and bottom line (23% EBITDA margin) on account of secular growth (online market CAGR +12% through to 2026e) and share gains for OPAP (new offerings, product enhancement etc.). We have recalibrated our model to reflect the updated strategy, with our numbers being somewhat more conservative than mgt target (€182m revenues for OPAP digital by 2025e), albeit still incorporating 34% CAGR over 2020-25e. Coupled with an increasing contribution from Stoiximan (GGR €400-500m in the coming years), we see OPAP’s revenue mix tilting a bit more to online (30% by 2025e), something that should also be reflected in the valuation. Overall, we see group revenues growing at c9% CAGR from 2022 through to 2025 (namely post COVID), filtering through to a similar growth in cash EBITDA.

Cash avalanche post COVID (yield) – 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). OPAP’s scrip dividend program (until 2023) facilitates the continuation of a high-dividend policy, given that the main shareholder’s participation in the reinvestment program will limit the actual cash outlay, while also paving the way for additional special dividends on an ad-hoc basis (as suggested by mgt at the recent call). The dividend reinvestment program also shortens Sazka’s path to a 50% stake (currently 46.4%).

Valuation – In the light of mgt’s new online strategy, we have recalibrated our model, making modest changes to our estimates (lower for 2021 but a bit higher beyond 2022). After rolling forward our valuation and lowering a bit our WACC (to 7.3% from 7.7% before), we have increased our PT to €15 (predicated on a DCF-based SOTP of OPAP’s concessions). We effectively value 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.