OPAP | The game is shifting – Buy
In our new note we stress that 2018 marked the start of a growth era for OPAP as cyclical momentum accelerated and cost savings started to filter-through. We contend that the earnings downgrade cycle has ended and suggest that OPAP is poised to deliver double-digit organic profit growth in 2019e as well, by virtue of product improvements, rising VLT contribution and further savings. Along with the consolidation of Stoiximan for 6 months, we expect OPAP’s adj. EBITDA to shape near €429m in 2019e, +21% yoy.Given the inherently cash-generative characteristics of the business model and the limited capex needs, we expect rising FCF generation as a result of the step-up in profitability. Against this background, we believe the high dividend-paying policy is set to continue with DPS near €0.9 in 2019e and potentially close to €1.0 in 2020e. This translates to a very compelling c10% dividend yield.
Our note also runs through the post-2020 tax conundrum again – a matter we raised as early as Jan 2018. We explain that the prepayment by OPAP of a significant amount of gaming duty relating to the Extension period (2021-2030) creates a tax-related hidden value worth >€2 per share, an issue we expect will come to the forefront in 2019, in view of the transition to the new tax regime in end 2020.
OPAP is engaged in the operating and management of numerical lottery and sports betting games as well as lottery games. Co. holds concession to operate and manage new sports betting games in Greece as well as a right of first refusal to operate and manage any new lottery games permitted by the Hellenic Republic. Co. operates six numerical lottery games, including Joker, Lotto, Proto, Extra 5, Super 3, and Kino; and three sports betting games consisting of Stihima, Propo, and Propo-goal. Co. is also engaged in designing new lottery games, including Bingo and Super 4. Co. distributes its games through an extensive on-line network of agents.
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