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OPAP | Q2’21 preview: Sense of normality, cash re-piling up

Normalizing trends and solid FCF – OPAP is due to release its Q2’21 results on 8th September post market close. Yoy comps are distorted by the first lockdown (affecting half of the quarter for land-based games and the bulk of the period for VLTs), the full consolidation of Stoiximan (impacting the top line) and the impact from the entry into effect of the new gaming duty regime. With these in mind, we expect almost 120% growth in revenues to €394m, driven by 76% growth in non-Stoiximan revenues further propelled by a >40% boost from Stoiximan’s consolidation (€78m revenues). On the cost side, the cost base will be inflated due to the consolidation of Stoiximan and increased marketing, with our numbers factoring in a c€8m yoy increase in comparable opex. As such we envisage comparable EBITDA of €81m (from €16m in Q2’20) leading to reported (cash) EBITDA of €136m (+744% yoy). We expect the group to switch to net profit of €72m from €15m net losses in the same quarter last year. The normalization in profitability (comparable EBITDA at c91% of pre-covid levels) will drive a >€100m reduction in net debt to c€440m on our estimates.

Underlying performance: online continues strong, Euro2020 somewhat subdued – Sportsbetting is lapping an easy comparative not only due to the effect from the days in operation but also owing to the widespread sporting fixture postponements that had taken place last year. On the other hand, it seems that Euro2020 did not result in a significant boost to the numbers, especially taking into account related marketing initiatives. As for online, this ought to have continued on an upward trajectory, albeit on decelerating run rates as punters returned to the shops. Overall, we expect c22% of OPAP revenues to have stemmed from online during the quarter from 6% in Q2’20. Focus at the conf call (day TBC) will be on current run rates and the extent of retracement vs pre-pandemic levels.

Thesis intact: 2-digit dividend yield, cash avalanche post COVID – As we have been arguing for quite a long time, we see no reason why the c€200m cash-flow boost stemming from the entry into force of the gaming duty regime over the Extension period (Oct 2020-Oct 2030) will not be 100% available for distribution. This is even more so the case as, on our estimates, OPAP would require just 2 years of FCF at group level in order to build the necessary capital for the renewal of the core concession in end 2030. With FCFE poised to range between €360m and €560m in 2021-23, we expect hefty shareholder returns in the future (10-12% yield). In fact, given the extra headroom created by the reinvested dividends, we see room for special distributions up to €3.7 per share if OPAP were to remain at net debt/EBITDA near 2x in 2022e and the main shareholder were to continue to fully reinvest its dividends. We thus see scope for total 2-3 year cash returns to exceed 40% of the market cap, a really unique investment proposition.

Valuation – Our €13.8 PT is predicated on a DCF-based SOTP of OPAP’s concessions (7.7% WACC) effectively valuing OPAP at an undemanding