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OPAP | Q2 2022 preview: healthy quarter with dividend flavor

Healthy execution, interim DPS ought to please – OPAP is due to release its Q2 results on 29th August (pre-market), with full statements being published on 7th September (and conference call following on 8th Sep). We expect quite a healthy quarter (revenues +13% yoy, EBITDA +9%), which will reaffirm: 1) OPAP’s superior cash flow generating capacity in the new era of low over-the-counter cash gaming duty (net debt near €35m, adj. FCF €120m in the quarter fully absorbing the last earnout related to Stoiximan acquisition); 2) the normalization of quarterly EBITDA near €160m in a seasonally slow quarter (validating OPAP’s annual EBITDA generating capacity of >€700m); 3) the top line resilience despite macro headwinds, with Q2’22 retail down c8% vs pre-COVID levels on our numbers. On shareholder returns, we expect a €0.2 interim DPS (vs €0.1 interim DPS last year), which will follow on just a few weeks after the distribution of the final cash return related to FY21 (€1.40 per share).

Q2 in more detail: retail c8% below pre-COVID levels, online sequentially softer due to poor sports calendar; 9% EBITDA growth – Yoy comps are easy for retail (with OPAP cycling shop closures until April-May last year, for betting outlets and VLT shops respectively). We expect retail operations to have retraced closer to normality (c8% below pre-COVID vs -11% in Q1’22 and -13% in Q4’21) helped by the easing of restrictions (abolition of green pass and mandatory mask wearing) which ought to have propelled performance of VLTs. On the other hand, OPAP digital is lapping a tough comparative with sportsbook also facing a rather poor calendar of events. As a result, we model online revenues of €95m, -11% yoy (and -10% qoq) with sportsbook (and thus Stoiximan) being affected the most. Overall, we anticipate group revenues (GGR) of €446m, +13% yoy (-3% qoq). On the opex front, we model a c€7m increase in non-variable opex to allow for increased support to agents, thus ending up with reported (cash) EBITDA of €156m (+9% yoy and -8% qoq). We expect net profit to settle at c€76m vs €72m in Q2’21 (+5%).

Valuation: renewal optionality – Mgt has guided for EBITDA of €720-740m in 2022e, with mgt suggesting at the Q1 call that the low end of the range was still feasible despite the negative backdrop precipitated by the war in Ukraine. Consensus median is currently in line with our estimate (€714-715m) and we believe that a number in excess of €700m is still achievable, especially given current trading (with VLTs remaining quite resilient), barring any unforeseen and significant deterioration in the macroeconomic environment (e.g. full cut-off of gas supplies). Besides fundamentals, we recently initiated a debate on licence renewal optionality estimating that only c30-35% of the value related to renewals/terminal values of OPAP’s concessions is embedded in the current share price, leaving >€4 as optionality, corresponding to >30% upside vs spot levels. Our PT (DCF-based SOTP of OPAP’s concessions at 7.3% WACC) effectively places the stock at 8.7x 2022e EV/EBITDA. We reiterate OPAP as one of our top picks in Greece.