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OPAP | The final pandemic quarters

Modest downgrade to 2021e to reflect extended lockdown – In the light of the prolonged period of lockdown in Q1’21 – with OPAP having operated at c25% of normal capacity on our estimates – we have lowered our 2021 comparable EBITDA estimates (excl. gaming duty regime effects) by 7%. We now expect organic (ex-Stoiximan) revenues in 2021 to shape c17% lower than pre-COVID levels, with performance bouncing back in H2 (+54% yoy, 11% above pre COVID levels) following a soft H1 (-19%). This will translate in organic EBITDA shaping c23% below pre-COVID levels in 2021 (at €600m post COVID and Stoiximan consolidation – Our recent detailed report “Die is cast, time to believe” presented in detail the mechanics of the gaming duty regime in effect since Oct’20 (until 2030). We showed how the pre-payment by OPAP of €1.8bn nominal gaming duty (in 2011) is worth more than >€4/share. As we explained, what this boils down to is that since October 2020 OPAP is liable for a cash gaming duty of 5% on revenues from legacy games (c€1bn) – given the €1.8bn nominal amount prepaid – as opposed to a 30% P&L duty. On that basis, OPAP’s cash EBITDA will be rebased by some €200m (to >€600m post Stoiximan consolidation), translating to FCFE of >€500m post return to normality. Even post Stoiximan earnouts in 2021-22e, we expect FCFE in the €380-490m area.

Q4 preview – Given the severe disruptions in Q4’20 (local shutdowns, nationwide lockdown since 7th Nov), we expect GGR to drop c52% in the quarter, namely similar to Q2 (-53%). We are looking for comparable EBITDA of €18m from €108m in Q4’19, again similar to the €16m delivered in Q2’20. Overall, FY20 will see OPAP suffer a 31% revenue decline and a 45% drop in comparable EBITDA, on our estimates, quite reasonable in the context of the 4.5-month lockdown in Greece. Notwithstanding the challenges and more than €140-150m paid in relation to the Stoiximan acquisition, we expect OPAP to have generated positive FCF in the year (c€60m), with net debt shaping near €565m. On the dividend, we believe it is likely that mgt will opt for a small DPS announcement, preferring to have the option of topping up the DPS proposal at the AGM (in June), depending on how the COVID situation develops.

Valuation; c12-13% sustainable dividend yield post COVID normalization – Although we have lowered 2021 EBITDA to reflect the extended lockdown, we have raised 2020e reported EBITDA c25% to more accurately reflect the positive impact from the GGR duty prepayment, assuming a pro-rata effect for the 2.5 months (c€40-45m effect). Our PT (unchanged) is predicated on a DCF-based SOTP of OPAP’s concessions (8.2% WACC) and effectively values OPAP at an undemanding c8x 2021e reported (cash) EBITDA. With FCFE poised to exceed €500m post COVID, we expect hefty shareholder returns in the future (c12-13% yield), reiterating OPAP as a top pick and as one of the most attractive names to play the re-opening theme.