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OPAP | Heads up – Q3 preview: normalizing top line

An almost normal quarter – OPAP is due to release its Q3’21 results on 23rd Nov post market close. We expect a “close-to-normal” quarter, with revenues +16% yoy (at €461m) underpinned by the consolidation of Stoiximan (c€70m on our estimates). Excluding the latter, we expect a flattish yoy performance for the rest of the business (having in mind that Q3’20 was also fully operational in terms of trading days). Given the limitations/restrictions still in place, we expect Q3 retail revenues to shape c2-3% lower than pre-COVID levels. We model non-variable opex excl. Stoiximan a bit higher qoq, thus ending up with comparable EBITDA of €118m (+12% yoy). Incorporating the income related to the prepayment of the GGR duty (details in our previous notes), we end up with a reported (cash) EBITDA of €174m, +66% yoy. We see net profit shaping in the €95m area (vs €53m in Q3’20). We expect the solid cash flow generation to be only partly absorbed by the cash dividend, thereby anticipating OPAP to have finished Q3 on a net debt position of c€340-345m (€423m in Q2’21).

Online ramping up – Online was just 3% of OPAP’s GGR mix in Q3’20 (€11m) but we expect this figure to have ramped up to 18% (€83m). Although the bulk of the incremental contribution comes from the consolidation of Stoiximan, we expect decent yoy growth (>20%) for OPAP’s own digital offering. 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 recent weeks 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 public venues. For unvaccinated individuals, this means tougher access to such venues, as authorities seek to rein in the renewed virus surge (caseload close to record highs). In OPAP’s case, these measures (in addition to the mandatory mask-wearing and capacity restrictions which were already in place) were introduced in early Nov, and in that regard, they ought to weigh on Q4 trading. At the conference call we will look for mgt comments on early signs of the impact from these restrictions, noting that our estimates assume Q4 retail revenues settle c8% lower than normal.

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.