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Fast Forward to growth and higher returns

OPAP 15 June 2021 Outlook
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OPAP

Fast Forward to growth and higher returns

FY20 and Q121 results
and outlook

Travel & leisure

15 June 2021

Price

€13.6

Market cap

€4,643m

Net debt (€m) at 31 March 2021 post IFRS 16 (net debt pre IFRS 16 €556m)

612

Shares in issue

341m

Free float

55.9

Code

OPAP

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.0

19.1

55.5

Rel (local)

6.6

9.2

8.5

52-week high/low

€13.7

€6.9

Business description

OPAP was founded in 1958 as the Greek national lottery and is the exclusive licensed operator of all numerical lotteries, sports betting, instant & passives, VLTs and horse racing. It was listed in 2001 and fully privatised in 2013. Sazka Group has a 44.1% stake and significant board representation.

Next events

H121 results

8 September 2021

Q321 results

23 November 2021

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

OPAP is a research client of Edison Investment Research Limited

OPAP is Europe’s only listed gaming operator with 100% pre-paid exclusive retail licences, which provide significant barriers to entry and relatively secure recurring cash flow. Prior to COVID-19, management delivered consistent revenue growth from product enhancements and profit growth was further helped by managing operating costs. The company looks well placed to deliver strong revenue growth as it recovers post COVID-19, and its exposure to faster growing businesses, including online, increases. The new CEO’s strategy, Fast Forward, aims to grow the brands and customer interactions while maintaining OPAP’s leading corporate and social responsibility credentials. We expect OPAP to continue its dividend policy of paying out the bulk of free cash flow and estimate a dividend yield of 5.8% in FY21 and 9.1% in FY22.

Year end

GGR*
(€m)

EBITDA
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

1,619.9

411.2

0.68

1.30

19.9

9.6

12/20

1,129.8

263.6

0.32

0.55

42.3

4.0

12/21e

1,581.6

575.0

0.86

0.79

15.8

5.8

12/22e

2,074.6

772.4

1.29

1.24

10.5

9.1

Note: *GGR = gross gaming revenues. **EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Exclusive concessions and moving online

OPAP has exclusive licences across a number of its gaming products; the earliest is due to expire in 2026 and the latest in 2036. The strategy is to grow revenue by enhancing its products while accelerating the move online. The outlook for the latter has been boosted by the recent acquisition of Stoiximan, a leading online provider of casino and sports betting in Greece and Cyprus. Its business model is capital light and therefore very cash generative, which has led to substantial dividend returns given OPAP’s policy of distributing the bulk of free cash flow.

Forecasts: Recovery and M&A

We forecast revenue growth of 40% in FY21 and 31% in FY22, due to a recovery in the offline businesses, the maturing of recent new gaming products and the consolidation of Stoiximan. We have reduced our adjusted EBITDA forecast for FY21 by 13%, reflecting more COVID-19 related closures of the land-based locations than previously expected. Adjusted EBITDA growth of 118% (FY21e) and 34% (FY22e) is driven by the revenue growth and ongoing cost control, boosted by the recent favourable licence extension. The growth in profit should ensure a healthy progression in the dividend.

Valuation: DCF-based valuation of €16.6

The share price has performed well in response to the favourable licence extension and in anticipation of a clearer path to recovery post COVID-19 and greater growth with Stoiximan. OPAP continues to trade at a discount to its quoted peers and the prospective yield of 5.8% in FY21 and 9.1% in FY22 looks attractive given the strong balance sheet. Our DCF indicates a valuation of €16.6 per share.

Investment summary

Exclusive licensed operator of the Greek national lottery

OPAP is Europe’s only listed pure gaming operator with 100% exclusive licences; the earliest is due to expire in 2026 and the latest in 2036. The business model is predicated on the continuing cash flow from monopoly businesses, supplemented by product enhancements and the move online. The outlook for the latter has been boosted by the recent acquisition of Stoiximan, a leading online provider of casino and sports betting.

The business model is very cash generative given its franchise model requires limited fixed and working capital and all licence payments have been made. With a high level of variable costs (taxes and commissions are based on revenue) and a strong track record of managing other operating costs, management consistently delivered higher margins before COVID-19, despite the challenging macroeconomic backdrop, while continuing to invest in new products.

The aim of the new CEO’s strategy, Fast Forward, is to create a world-class gaming entertainment company with a focus on building its brands and customer interactions both online and offline, while maintaining OPAP’s leading position in corporate and social responsibility.

Financials: Recovery post COVID-19 boosted by M&A

Our new forecasts for revenue growth of 40% (FY21) and 31% (FY22) reflect gradual underlying recovery post COVID-19, new product growth and the first full year consolidation of Stoiximan. Forecast adjusted EBITDA growth of 118% (FY21) and 34% (FY22) are helped by a continuation of good cost management, as well as the favourable licence extension (from October 2020).

Exhibit 1: Summary forecast changes

Gross gaming revenue (€m)

Adjusted EBITDA (€m)

EPS (€)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY21e

1,656.0

1,581.6

(4%)

658.5

575.0

(13)

1.04

0.86

(17%)

FY22e

N/A

2,074.6

N/A

N/A

772.4

N/A

N//A

1.29

N/A

Source: OPAP accounts, Edison Investment Research

Valuation: Discount to DCF-based valuation of €16.6

Our DCF-based valuation uses a terminal growth rate of 1.5% and a terminal EBITDA margin of 25% in 2031 to reflect the end of the concession in October 2030, which increases the EBITDA margin to 37–38% during its term. We assume that OPAP pays €1bn between 2028 and 2029 to renew its concession beyond 2030. Using a WACC of 7.5% produces a value per share of €16.6.

OPAP’s dividend policy is to return the bulk of free cash flow to shareholders. The prospective dividend yield of 5.8% in FY21 and 9.1% in FY22 looks well underpinned given the strong balance sheet, even after a difficult FY20 and M&A activity.

Sensitivities

The business model is predicated on continuing cash flow from monopoly businesses, supplemented by product enhancements and moving online; key risks include a more significant decline in its mature gaming products and a failure to exploit online sufficiently.

The gaming industry is subject to changes in regulations and taxes, but OPAP’s licences and concessions are long dated, and it has a high tax burden relative to other countries.

The business is economically sensitive so is vulnerable to political and macroeconomic changes.

Company description: World-class gaming entertainment offline and online

OPAP was founded in 1958 as the Greek national lottery and is the exclusive operator of all numerical lotteries (seven games), sports betting (four games), horse racing and video lottery terminals (VLTs). Through its 83.5% holding in Hellenic Lotteries, OPAP also has an exclusive licence to operative passive lotteries and instant (scratch) games. The company operates a network of franchised shops and gaming halls (c 4,000 in Greece, and c 200 in Cyprus at FY20) and is expanding its online offering in lottery and sports betting.

OPAP listed on the Athens Stock Exchange in 2001, and after a series of further secondary offerings and international tenders, it was fully privatised in 2013. Sazka Group, the largest pan-European lottery operator, holds a 44.1% shareholding and is well represented at the board and executive level.

The exclusive licences ensure OPAP is well placed to protect the top line (in the context of sensitivity to the macroeconomic environment and retail spending) and it is seeking growth from online and new products. In general, many of its new products are targeted at younger and female demographics, such that management hopes to minimise the cannibalisation of existing products. Since 2013, OPAP has undergone significant changes to both modernise and streamline the business.

OPAP is the largest social contributor in Greece operating under the World Lotteries Association (WLA) and responsible gaming standards, while it transforms its business excellence into social contribution through an integrated corporate social responsibility programme.

Business overview

OPAP’s games portfolio is split between fixed-odds betting games and mutual betting games (total amount is distributed to winners). The traditional ‘legacy’ games, Lotteries, Sports Betting and Instant and Passives are mature businesses, and growth is expected to be driven by online activities and VLTs. Following the additional investment in Kaizen Gaming in FY20, its main Greek and Cypriot activities (Stoiximan) are fully consolidated from December 2020. Exhibit 2 demonstrates how gross gaming revenue (GGR), that is revenues for the individual business and the group, have developed and how we expect them to recover through FY21 and FY22, following COVID-19.

Exhibit 2: GGR

Exhibit 3: GGR split

Source: OPAP, Edison Investment Research

Source: OPAP, Edison Investment Research

Exhibit 2: GGR

Source: OPAP, Edison Investment Research

Exhibit 3: GGR split

Source: OPAP, Edison Investment Research

Lotteries (46% of FY20 GGR): Moving online

Numerical lottery games comprise the largest portion of GGR and consist of six games that are currently active, and two new lottery games (Bingo and Super 4) that have yet to be launched. The exclusive licence to operate the games, along with sports betting (see below), was originally acquired for 20 years in October 2000, and extended for a further 10 years in 2011 up until October 2030. The fixed odds games are Kino, Super 3 and Extra 5, and the mutual games are Tzoker (Joker), Lotto and Proto. The two most significant games in terms of revenue contribution are Kino and Tzoker.

From FY14 (when the current divisional disclosure was introduced) to FY19, GGR declined from 817m to 779m, with modest y-o-y declines since FY16 due mainly to some cannibalisation from other games. There is a high correlation between growth in GGR and private consumption for lotteries. Relatively stable GGR taxes and lower agents’ commissions versus GGR led to a consistent increase in gross margin from 41.1% (FY16) to 43.3% (FY19), and a stable absolute gross profit. In FY20 GGR fell by c 33% due to COVID-19 lockdowns and operating restrictions.

Sports Betting (24% of GGR): New products and online to help growth

The exclusive licence to operate the sports and other betting games is part of the licence above, extending until 2030. Sports betting games includes fixed-odds games Pame Stoixima (the most important game), Pame Stoixima Virtual Sports and the mutual betting games Propo, Propogoals, and Horse Racing Stoixima.

OPAP has continued to develop its offer: Pame Stoixima Virtual Sports were launched in April 2017 to target a younger demographic and have clearly boosted the betting segment. Self-service betting terminals (SSBTs) were launched in August 2017 and virtual games were introduced to the terminals in November 2017. The Pame Stoixima sportsbook was enhanced in 2019. In April 2019, OPAP launched its online casino games through the pamesoixima.gr platform. In addition to enhancing its own sport offering, in 2020 OPAP acquired a controlling stake in Stoiximan, the leading online operator in Greece and Cyprus with market share of close to 50%.

GGR has reduced from €456m in FY14 to 396m in FY19 (under the old reporting structure) due to the general move online, where there is more competition. As for lotteries, relatively consistent GGR tax and duties and lower agents’ and other commissions have led to a higher gross margin of 38% in FY19 versus FY16’s 37%. In FY20 GGR declined by c 31% y-o-y. From FY20, OPAP’s online sports betting activities are reported in a new division, Online betting (see below).

Instant and Passives (7% of GGR): Mature business

OPAP holds an 83.5% stake in Hellenic Lotteries, which has operated the instant and passive lotteries since 2014; the licence expires in 2026. The three Passive games are Laiko (weekly jackpot), Ethniko (a subscription game in which each player has a unique number) and State Lottery (the traditional New Year’s Eve draw). Instant lotteries include scratch cards. All are available from OPAP’s agencies and street vendors, and the scratch games can be found in convenience stores etc.

This is a mature business with limited potential to grow given the increasing number and sophistication of competing products. GGR has declined modestly in recent years, from 159m in FY16 to 147m in FY19.

The licence stipulates that GGR tax in any year is a minimum of 50m or 30% of GGR. In FY19 and FY20 (due to COVID-19), GGR was lower than 150m, therefore the minimum 50m was expensed instead of the variable 30%. Hellenic Lotteries has filed for arbitration that the minimum levy for FY20 should not be payable due to the government’s COVID-19 related operating restrictions, and the liability should be the variable 30% of GGR (ie 12.3m, which has been paid), instead of the expensed €50m.

Agents’ commissions have increased relative to GGR; the rates are based on wagers rather than GGR as for other games and vary by product. The combination of lower GGR, with higher relative GGR taxes and agents’ commissions, have led to lower gross margins, 34.4% (FY16) to 30.3% (FY19). It was marginally loss-making at the gross profit level in FY20 due to lower GGR.

VLTs (18% of FY20 GGR): Source of growth

A VLT is a standalone machine with a random-number generator. The machines are certified by the Hellenic Gaming Commission and OPAP’s licence to operate the VLTs runs for 18 years, expiring in 2035. VLTs were officially launched in January 2017 and OPAP successfully completed the roll-out of the permitted 25,000 VLTs into ‘Play’ gaming halls and selected agencies by the end of 2019. The investment in VLTs and new concept shops was one of the largest and fastest gaming store roll-outs in Europe. The majority of the new Play stores contain c 30–40 machines, although OPAP has opened some larger flagship stores alongside smaller ones (with lower capex requirements), which are more suitable for less dense locations.

VLTs have a 2 limit, which is in line with the fixed odds betting terminal stake limits in the UK. Importantly, unlike the traditional over-the-counter (OTC) games, players are required to register and there were 528k registered players at December 2020 with c 128k monthly active users. Apart from the general reliance on the macro environment, a key driver for the VLT business will be to shift consumers away from the illegal machines towards OPAP venues. OPAP is hopeful that its VLT jackpots will provide a suitable inventive for players to shift allegiance.

From the launch in FY17, GGR reached c €298m in FY19, 18% of group GGR, before reducing to €201m in FY20 due to COVID-19.

VLTs are liable to GGR tax of 30% and agents’ commission varies depending on whether the machines are located in gaming halls or traditional OPAP stores.

In FY20, VLTs generated GGR of c €201m, averaging €39 GGR/VLT per day and EBITDA of 25m. Since launch, GGR/VLT per day has modestly declined as, naturally, the highest spending markets were targeted initially and the density of machines was lower. As the estate matures GGR/VLT per day is expected to gradually increase; we forecast a rate of €40 per day in FY22.

Exhibit 4: VLT – GGR performance

Exhibit 5: VLT – active player base

Source: OPAP

Source: OPAP

Exhibit 4: VLT – GGR performance

Source: OPAP

Exhibit 5: VLT – active player base

Source: OPAP

Online (6% of GGR): Main source of growth

OPAP’s online presence and revenue is building quickly following the introduction and subsequent growth of many of its own games as well as the acquisition of a majority stake in Stoiximan (see below).

OPAP’s total online exposure has grown from c 1% of GGR in FY19, to c 6% of GGR in FY20, and c 24% in Q420, albeit the FY20 is skewed by the COVID-19 related closures of the physical estate. In FY20, OPAP’s online revenue was 42m and Stoiximan’s pro forma revenue was c 262m.

Exhibit 6: Active players (monthly average, ‘000s)

Exhibit 7: Online GGR (m)

Source: OPAP data

Source: OPAP data

Exhibit 6: Active players (monthly average, ‘000s)

Source: OPAP data

Exhibit 7: Online GGR (m)

Source: OPAP data

With the announcement of the FY20 results, OPAP enhanced its divisional disclosure to report separately the financials for Online Betting (ie sports, c 62% of Q420 pro forma) and Other Online Games (casino c 34% of Q420 pro forma and lottery c 4%). The two divisions include the results of OPAP’s own online activities as well as the consolidated elements of Kaizen Gaming (ie its Greek and Cypriot operations).

The underlying growth of the online market and the maturing/introduction of games has led to a substantial increase in the user base and revenue for both OPAP and Stoiximan. By the end of Q420, OPAP’s registered base of online players had increased by 77% y-o-y to c 418k and during the quarter monthly average users increased by c 80% y-o-y to c 139k. The growth in users drove a more meaningful 248% y-o-y increase in online GGR to 41.4m in FY20, implying a good increase in GGR per user. While there has been a boost to the growth of online from COVID-19 related closures, we observe that OPAP’s growth has exceeded its estimates for total online growth of +35% online growth and its share of the online market more than doubled. There was further sequential growth in Q121 when OPAP’s average monthly users grew to 163k and revenue was 19m.

Kaizen Gaming investment

In September 2018, OPAP announced the acquisition of an initial 36.75% stake in TCB Holdings (now named Kaizen Gaming), the parent company of Stoiximan, a leading online gaming company for 50m. In April 2020, OPAP announced a further combined investment of 163.4m for a direct (51%) and indirect (15.48%) stake in the Greek and Cypriot operations, which was completed in December 2020. As a result, OPAP has a controlling stake (84.49%) in the Greek and Cypriot operations (Stoiximan brand) and a 36.75% in its other markets: Germany, Portugal, Romania and Brazil that operate under the Betano brand. The deal enhances OPAP’s presence in the Greek and Cypriot online sports betting and casino markets, but it is run independently from its own online businesses. Prior to the December 2020 transaction the whole of Kaizen was accounted for as an associate. Following the conclusion of the transaction and taking control of Stoiximan it is fully consolidated and the other countries continue as an associate. In FY20, OPAP’s associate income was 18.2m versus FY19’s 8.5m, including the income from Stoiximan prior to the full consolidation from December 2020, as well as a full year of the international operations.

The strong growth in Kaizen’s customer base during FY20 (monthly average active players increased by c 51% y-o-y to reach 292k in Q420), led to 46% growth in its GGR for the year to c 355m. For the year, Kaizen’s total profit contribution to OPAP of 28.1m (consolidated and associate income) compares with the associate income of 8.5m in FY19.

Cost structure: High GGR tax, but stable fixed costs

Within OPAP’s cost structure, the two major variable components are the GGR tax (34.7% of FY20 GGR) and agents’ commissions (34.7% of net gaming revenue (NGR)). Relative to revenue, both have reduced between FY16–19, but increased in FY20 due to the mix effects of COVID. These reductions, when combined with underlying control of other operating costs led to a consistent increase in adjusted EBITDA margin from 22.0% (FY16) to 25.4% (FY19) before the COVID-19 related decline to 23.3% (FY20).

GGR tax: Recently reduced

Coinciding with the full privatisation of the company in 2013, a 30% GGR tax was introduced by the Greek regulator. In essence, this tax replaced the dividend payments to the government. Three years later the GGR was further increased to 35% for just the Lotteries and Sports Betting licence, which was at the very top end of gaming taxes across Europe; however, it has subsequently reduced to 30% from October 2020. As a reference, other European gaming markets are levelling out at around 20–25% tax. Following the reduction in October 2020, GGR tax is 30% across the portfolio except for Instant and Passives (as described above) and for the online activities, taxed at 35%.

Agents’ commissions: Variable

OPAP operates via a network of franchise shops throughout Greece and Cyprus paying commissions to agents and committing only limited resources to the kit out of shops. The company has renegotiated commission structures (now mostly variable with NGR) and the dynamics of the estate have altered. OPAP has been gradually churning and rejuvenating its estate, notably since renegotiating commissions. Over the long term the number of OPAP stores has reduced and the average size of the stores has increased: in Greece, the number of stores has reduced from c 4,700 in FY13 to over 3,600 in FY20; in Cyprus the number has marginally increased to 202. At the same time, the company has expanded the number of alternate points of sale for Hellenic Lotteries products. OPAP has also developed a new network of gaming Play stores for its VLTs.

Continuing operating cost controls

As a direct result of OPAP’s ongoing cost controls, total operating costs (ie personnel, marketing and other) have declined on an absolute basis since FY16, despite the commencement of several material projects (Hellenic Lotteries, Horse Racing, VLTs and Virtual Games).

Concessions: Barrier to entry

Key to OPAP’s strategy is that it holds exclusive concessions in all land-based games in Greece apart from casinos where OPAP has no presence. The core games exclusive licence has been extended until 2030, the scratch tickets and passive licence expires in 2026, and the horse racing licence expires in 2036. The exclusive licence to operate 25,000 VLTs in Greece expires in 2035.

On 13 October 2020, the 10-year extension of OPAP’s exclusive right to run specific numeric and sports betting games became effective, as discussed in our initiation note.

Large social contributor in Greece

OPAP is among the larger social contributors (tax contributions, employment and charitable donations) in Greece operating under the WLA’s and responsible gaming standards, while it transforms its business excellence into a social contribution through an integrated corporate social responsibility (CSR) strategy. A summary of OPAP’s credentials is shown below.

Exhibit 8: Environmental, social, governance (ESG) ratings

Source: OPAP FY20 results presentation

Fast Forward strategy

Following his appointment as CEO effective from 1 January 2021, Jan Karas, who had been Acting CEO since June 2020, introduced his Fast Forward strategy in April 2021.

The strategy outlines six key areas, highlighted below, to be used as a general framework for continuing OPAP’s journey to providing world-class gaming entertainment to its customers in retail and online. The strategy continues the work of the previous CEO’s strategy, Vision 2020, which was introduced in 2016 and successfully executed. Enveloping the whole strategy is the company’s strong focus on corporate responsibility and responsible gaming, ensuring that OPAP remains the CSR leader in Greece.

Exhibit 9: Fast Forward strategy

Source: OPAP

Customer: management aspires to deliver more social interactions with its customers by building better experiences in retail and online. Where possible this will be aided by the collection of data on customer activity and by measuring the effects of future changes to games made by OPAP.

Brand: the OPAP brand and those of the individual games are considered the strongest assets so the aim is to keep them relevant to existing customers and make them more relevant to potential new customers as it expands further into digital.

Online: management aims to boost its online presence by enhancing the product proposition, taking advantage of customer insights and customer relationship management (CRM), and upgrading the front ends, as well as from the underlying growth of Kaizen Gaming. In FY21 front end upgrades include the lottery portfolio.

Retail: as the group moves more online it is important to maintain the strong retail position by evolving the local destination experience with innovation to gaming, and the move to more paperless and cashless transactions.

Technology: there are five key areas of focus for technology enabling better customer solutions and improving OPAP’s efficiency: CRM, operational excellence, elastic and scalable infrastructure, innovation in enterprise solutions, and opening gaming ecosystems.

People: the ultimate aim is become more agile through the optimisation of structures and by the continual evolution of the company’s culture.

Management

OPAP’s board comprises 10 non-executive directors (including four independent directors) and three executive directors (chairman, CEO and CFO). Many of the board members are associated with OPAP’s major shareholder, Sazka Group, Europe’s largest lottery business.

Exhibit 10: Board and management team

Name

Role

Background

Kamil Ziegler

Executive chairman

Former CEO and current board member of Sazka, the Czech lottery operator. Previous experience includes chairman and CEO of Czech state-owned Consolidation Bank, board member of PPF Group and deputy CEO and board member of Czech Savings Bank.

Jan Karas

CEO

Joined OPAP in 2014 and became CEO in January 2021. Previous experience includes senior executive positions in marketing, sales and product development in the telecommunications sector.

Spyros Fokas

Vice-chairman, non-executive member

Member of the Hellenic Lawa Association, member of the board of directors of Aegean Marine Petroleum Network Inc. Member of the Piraeus Bar Association since 1980.

Pavel Saroch

Vice-chairman, non-executive member

Currently board member of Sazka Group and CIO and board member of investment group KKGC. Prior positions include board member of IFB (consultancy and private investments).

Katarina Kohlmayer

Non-executive member

Has been a senior investment banker with experience in corporate finance, reporting and accounting, international M&A, and equity and debt capital markets at firms including Morgan Stanley and VTB Capital.

Pavel Mucha

CFO

Became CFO in October 2019 having joined from Sazka where he was CFO. Prior roles tax consultant at Price Waterhouse, and various finance positions in pharmaceutical and FMCG companies.

Christos Kopelouzos

Non-executive member

Currently Co-CEO of Copelouzos Group with business activities in the areas of natural gas, renewable energy, electricity production and trading, real estate, concessions, airports and gaming.

Stylianos Kostopoulos

Non-executive member

Head of the family office of the Founders of Aegean Oil, as well as board member, CFO, financial advisor and treasurer in various companies. Also a member of the board of EMMA DELTA VCIC and its affiliates. Prior roles include managerial positions in the financial and banking sector.

Nikolaos Iatrou

Independent non-executive member

Until 2005 chairman and managing director of Marfin Hellenic Securities SA as well as several other managerial positions within MARFIN BANK. In 2007 founded SILK Capital Partners, a boutique corporate finance firm. Since 2015 he has been a member of the board of directors and was also a member of the investment committee of NBG PANGEA REIC. He is a member of the Hellenic Olympic Committee and mentor in ENDEAVOR Greece.

Robert Chvátal

Non-executive member

CEO of Sazka Group and vice-president of European Lotteries (the industry association). Prior roles include CEO and board member of Slovak Telecom in T-Mobile Slovakia and CEO for T-Mobile Austria, chief marketing officer and member of board of directors of T-Mobile Czech Republic.

Rudolf Jurcik

Independent non-executive member

Currently the owner and executive director of the Prestige Oblige, Private Management & Consultants FZ LLC in Dubai. Previously, served as CEO of MAF Hospitality (Property) in Dubai and as president of the Oberoi International Group in New Delhi. Also worked as a special advisor to the CEO of Air France Group in Paris and as managing director of Forte/Meridien Hotels. Additionally, Mr Jurcik has served as a senior vice president of Meridien, based in Athens. He has also worked as a French foreign trade advisor and as a COO of the Casino Royal Evian in France.

Igor Rusek

Independent non-executive member

From 1994–2001, he was associate attorney at ATAG Ernst & Young in Basel. In 2001 he was appointed partner and member of Executive Committee at ATAG. Dr Rusek is CEO of ATAG PCS Ltd, a leading Swiss-based European advisory company. He has the chair of ATAG’s Compliance Audit Team and is mainly responsible for audit and tax audit procedures in companies administrated by ATAG, as well as their corporate governance.

Dimitrakis Potamitis

Independent non-executive member

Currently chairman of the Audit Committee in Resolute Asset Management SA and deputy member of the Quality Review Council of Hellenic Accounting and Auditing Standards Oversight board (HAASOB/ELTE) and member of the Hellenic Institute of Public Accountants - Auditors. He is also an independent, non-executive board member of Aegean Baltic Bank SA and chairman of the Audit Committee, as well as a member of the Remuneration Committee (from 2012) of the bank.

Source: OPAP data

The Greek gaming sector

The Greek gaming market is regulated by the Hellenic Gaming Commission (HGC) and a three-member supervisory committee is responsible for the supervision and exercise of preventive control over OPAP to protect the public interest. In 2014, the Greek State Council ruled that OPAP’s monopoly in Greek gaming was irrevocable and no appeal can be raised before a national or EU court.

The HGC estimates that the total Greek gaming market’s GGR amounted to €1.6bn in 2020, having dropped by 27.1% y-o-y due to the COVID-19 outbreak and its effect on retail business, of which OPAP’s land-based games (ie the numerical lotteries, sports betting and VLTs) comprised €904m (c 56% of the total). Legal online gaming comprised €588m (36% of total); land-based casinos (ie from 10 casino companies) €85m (5%); land-based state lottery games (ie operated by Hellenic Lotteries, majority owned by OPAP) €41m (3%); and land-based horse racing betting €6m (less than 1%). In total, management estimates OPAP’s total market share at 61% of GRR, without the online market share of Stoiximan. Online gaming is dominated by betting (61% of the total), with casino comprising 36% and poker comprising 3% of GGR.

OPAP estimates that in 2020 GGR per adult in Greece was €172, broadly in line with the European average of €173, while that of Cyprus is a little higher at €240. Given the longstanding cultural tendency to gamble in Greece, we note that Greece’s GGR as a percentage of GDP was 0.99%, the highest of the 27 EU countries; the average for all 27 countries was 0.53%.

Online gaming regulation: In process

HGC estimates that the Greek online gaming market grew 34.5% in 2020 to €588m GGR, although this is still far lower than other European countries (c 24.8% in 2019 according to Statista). Online gaming is dominated by betting (61% of the total), with casino comprising 36% and poker comprising 3% of GGR. Betting and poker have declined in importance (market share) in recent years at the expense of growth in casino.

Within the legal sports betting market, the market leader is Stoiximan with c 50% market share, and the main competitors are bet365 and Entain.

Following the HGC’s invitation to apply for online gaming licences in February 2020, OPAP submitted applications for each of the two available types of licence, Online Betting and Other Online Games in March 2020. The 24 operators that were granted temporary licences in 2011 were allowed to continue operating until 31 March 2020 before having to re-apply for the licences. Supplemental data was submitted in September 2020, and the HGC has not yet completed its assessment of suitability of the shareholders and persons that perform key operations of all of the applicants. The HGC has already granted online licences to OPAP and Stoiximan with go-live dates expected to be 1 August 2021. Under the current proposed regulations, the seven-year licences will cost €3m for sports betting and €2m for live casino and poker, the holders must pay a GGR tax of 35%, and there is no limit to the number of potential licences. The blacklisting of unlicensed operators will continue and licensees will be required to have a registered office in Greece or another EU country.

Sensitivities

OPAP’s business model is predicated on continuing cash flow from the monopoly businesses, supplemented by product enhancements and growth from online. The main sensitivities to the business are:

Concession risk: in 2011, OPAP extended its exclusive concessions for retail games to 2030. While there is always some degree of risk that the concessions will not be renewed (or will be exorbitantly expensive), the 2014 State Council’s final decision on OPAP’s monopoly provides some comfort.

Regulatory risk: across all jurisdictions, the gaming industry is subject to changes in regulations and the Greek government raised the GGR tax from 30% to 35% in FY16. Although it is possible that there will be further tax rises, the tax is already well above other regulated European countries, so we see this as reasonably unlikely. Other regulatory issues (eg sources of funds, anti-money laundering, know your customer etc) could also become more onerous, although we note that OPAP’s businesses are not generally associated with problem gambling and will be unlikely to face the same regulatory scrutiny.

Illegal market: although the government has stated it will pursue illegal activity, until there is more concrete action, we believe illegal premises (for VLTs) will continue to be OPAP’s number one competitors, which could hamper the company’s growth prospects.

Economic and political risk: the Greek economy has suffered well-documented challenges since 2008 and softness in retail spending is an ongoing risk, particularly exacerbated by COVID-19. We note that gaming spend per adult (as a percentage of GDP in Greece) is already well above the European average. This clearly presents a risk, particularly if GDP growth slows. To counterbalance, it is likely that online betting will increase.

Cannibalisation risk: as players begin to play online and on VLTs, there is the strong possibility this will cannibalise the existing retail OTC business more than our forecasts assume.

Major shareholder: while we believe that Sazka Group’s strategic 44.1% stake is an overwhelming positive, providing expertise in the European lottery business, the business is controlled by a major shareholder and there is a possibility that its interests may not always be aligned with other investors. However, interests have been aligned so far (cost containment, business growth, dividend etc).

Financials: Affected by COVID-19

OPAP’s financial results have been affected by COVID-19 related lockdowns and operating restrictions. In FY20 OPAP generated adjusted EBITDA (excluding associates and one-off items) of €263.6m in FY20, with a small deterioration in EBITDA margin of 220bp to 23.3% despite operating with no closures or restrictions for just 20% of the year. FY21 results will continue to be affected as the national lockdown that commenced in Greece on 7 November 2020, and part of Cyprus from 12 November, began to ease from mid-April, following partial re-openings in Q121.

In FY20 GGR declined by c 30% y-o-y to €1,129.8m, NGR by c 32% to €737.3m (higher taxes and levies on GGR due primarily to mix changes), gross profit from gaming operations by c 32% to €421.2m, and EBITDA by 36% to €263.6m. The EBITDA margin of 23.3% compared with FY19’s 25.5% and reflects the slightly lower gross margin and some expense deleveraging. OPAP’s definition of EBITDA differs slightly from our own, as it includes associate income (€18.2m) and one-off items (€21.5m cost), therefore using OPAP’s definition, EBITDA declined by c 37% to €260.3m, c 32% on a like-for-like (l-f-l) basis. Operating income of €232.7m was c 19% lower than FY19 due to higher impairment charges on fixed and intangible assets of €36.8m, and a one-off gain (on remeasurement of the previously held equity investment in Kaizen) of €142.7m. Excluding these one-off items, normalised operating profit fell by 51.5% to €232.3m. Reported PBT of €216.9m in FY20 declined by 19% y-o-y as the lower reported operating income was helped by higher associate income. A lower effective tax charge due to the above gain led to a 3% y-o-y decline in EPS to €0.614, but on a normalised basis EPS fell by c 53.3% to €0.321.

In Q121 GGR declined by c 47% y-o-y to €174.2m as the physical locations were closed for most of the period, NGR by c 51% to €105.6m, gross profit from gaming operations by c 38% to €75.6m, and adjusted EBITDA by 26% to €60.7m. The EBITDA margin of 34.9% compares with Q120’s margin of 25.0% and reflects the benefit of other income from the licence extension of €45.5m as well as the consolidation of Stoiximan.

Revenue: Recovery post COVID-19

The effects of the closures and operating restrictions on OPAP’s non-Kaizen GGR in FY20 are summarised as follows:

Exhibit 11: COVID-19 effects on OPAP’s revenue (excluding Kaizen Gaming)

Days

% of year

FY20
l-f-l

Monthly GGR change (€m)*

Comments

Open

203

56%

1.0%

1.3

72 days pre COVID-19, 131 days with safety measures and restrictions

Partial lockdown

48

13%

(20.6%)

(27.3)

Seating restrictions and VLTs closed for 27 days and local restrictions 21 days

Lockdown

114

31%

(92.3%)

(130.1)

Enhanced online offering the only revenue stream

Total

365

Source: OPAP. Note: *Estimated financial impact for each complete month in FY20 versus FY19.

In FY20, OPAP’s physical locations were open and operating with no restrictions for only 72 days (c 20% of the year), therefore for c 80% of the year the locations were either closed or operating with restrictions such as shorter opening hours or restricted dwell times. When ‘open’ GGR increased in FY19 by €1.3m per ‘complete’ month. When in lockdown, the lost GGR per ‘complete’ month of closure was €130m, at the lower end of management’s initial estimated financial impact of COVID-19 of €130-140m per month.

Post the ending of lockdowns, we broadly assume that OPAP generates revenue in offline locations equivalent to 80% of FY19 levels in the first month of re-opening, with gradual monthly increases thereafter so that by the fifth month it achieves 100% of FY19 revenues.

For FY21, we forecast GGR growth of 40% due to the full year consolidation of Stoiximan, which contributes GGR of c €348m, as well as the underlying recovery post lockdowns. For FY22, we forecast a further 31% growth in GGR to €2,075m. For Lotteries, Sports Betting and Instant and Passives we forecast FY22 GGR to be marginally lower than FY19.

Exhibit 12: OPAP’s revenue

€m

2014

2015

2016

2017

2018

2019

2020

2021e

2022e

– Lotteries

817.3

829.8

841.3

818.0

779.9

778.6

518.6

592.1

768.0

– Sports Betting

456.3

412.0

397.2

421.1

406.2

387.3

268.3

291.8

384.0

– Instant and Passives

104.1

157.9

159.1

158.9

152.2

147.5

76.3

115.9

146.4

– VLTS

0.0

0.0

0.0

57.6

208.7

297.7

200.5

202.9

342.0

– Online Betting

0.0

0.0

0.0

0.0

0.0

8.9

42.0

160.6

183.6

– Other Online Games

0.0

0.0

0.0

0.0

0.0

0.0

23.9

218.3

250.6

Total GGR

1,377.7

1,399.7

1,397.6

1,455.5

1,547.0

1,619.9

1,129.8

1,581.6

2,074.6

Growth y-o-y

12.9%

1.6%

(0.2%)

4.1%

6.3%

4.7%

(30.3%)

40.0%

31.2%

Source: OPAP data, Edison Investment Research

Lotteries GGR declined by c 33% during FY20 to €519m. This included continued growth in Tzoker online as the number of customers increased. In Q121, GGR fell by c 76% to 37m due to the store closures but includes a significant increase in online revenue from 2m in Q120 to 5m in Q121. For FY21 we assume that GGR increases by c 14% % to €592m, equivalent to c 76% of FY19 GGR, and FY22 grows by a further c 30% to 768m, marginally lower than FY19’s 779m. Apart from economic and COVID-19 related restrictions, the lottery business is naturally affected by some VLT substitution and we expect online products to mitigate the retail decline.

Sports Betting offline revenue declined by c 31% y-o-y in FY20 to 268m as it was naturally affected by the cancellation or rescheduling of major sporting events but also sees continuing pressure from online competitors and the cannibalisation from VLTs. Aggregating OPAP’s and Stoiximan’s online sports betting revenue, it declined by c 22% y-o-y to 396.2m. We forecast offline GGR growth of 9% to 292m in FY21, and further recovery of c 33% in FY22 taking GGR to 384m, marginally below FY19’s 387m.

Instant and Passives GGR fell by 48% y-o-y to 76m for FY20 and by 59% in Q121 to 8m. For FY21 and FY22 respectively we assume GGR growth of 52% and 26% taking GGR to 116m and 146m, such that our FY22 forecast is marginally below FY19’s 148m.

VLTs FY20 GGR of 201m was 33% lower than FY19, with GGR per VLT per day at 39 for the full year. The network was closed for the whole of Q121 and re-opened on 24 May. For the remainder of FY21 we assume GGR/VLT per day of €39 giving revenue growth of 1% in FY21, and in FY22 we assume €40 per day leading to 69% growth to €342m, 15% higher than FY19’s €298m.

Online Betting includes OPAP’s own online activities and the newly consolidated revenue from Stoiximan. In FY20, revenue grew by 373% due to underlying momentum in users, new games and the consolidation of Stoiximan. In FY21 we assume 33% underlying growth for Stoiximan, and 20% underlying growth for OPAP’s online betting GGR, which with the full year consolidation of Stoiximan gives total growth of c 282% in FY21 to 161m. In FY22, we assume growth of 15% for Stoiximan and 10% for OPAP.

Other Online Games (ie casino) – disclosure was also introduced with the FY20 results. We assume similar growth rates for Stoiximan and OPAP as above, taking FY21 GGR to 218m and 251m respectively.

Stoiximan: our assumptions above lead to total GGR forecasts for Stoiximan (included in Online Betting and Other Online Games) of 348m in FY21 and 401m in FY22.

Costs and profits

For FY21 and FY22 we forecast adjusted EBITDA growth of 118% and 34% respectively.

Exhibit 13: OPAP’s costs and profit

€m

2014

2015

2016

2017

2018

2019

2020

2021e

2022e

GGR contribution and other levies

(404.5)

(412.0)

(466.7)

(482.6)

(507.1)

(533.7)

(392.5)

(508.6)

(650.2)

% of GGR

29.4%

29.4%

33.4%

33.2%

32.8%

32.9%

34.7%

32.2%

31.3%

NGR

973.1

987.7

930.8

972.9

1,039.9

1,086.2

737.3

1,072.9

1,424.4

Growth y-o-y

(1.3%)

1.5%

(5.8%)

4.5%

6.9%

4.4%

(32.1%)

45.5%

32.8%

Agents' commission

(359.7)

(362.4)

(358.4)

(369.9)

(381.1)

(387.3)

(255.9)

(297.9)

(409.4)

% of NGR

37.0%

36.7%

38.5%

38.0%

36.6%

35.7%

34.7%

27.8%

28.7%

Other NGR related commission

0.0

0.0

(26.3)

(38.3)

(60.7)

(76.7)

(60.2)

(93.3)

(129.9)

% of NGR

0.0%

0.0%

2.8%

3.9%

5.8%

7.1%

8.2%

8.7%

9.1%

– Lotteries

375.3

380.7

345.7

337.7

330.3

336.8

230.4

264.4

343.0

– Sports Betting

193.3

176.6

147.1

155.2

152.8

147.1

101.8

116.7

153.6

– Instant and Passives

46.7

69.5

54.7

54.8

51.5

44.7

(0.4)

32.3

47.2

– VLTS

0.0

0.0

0.0

18.4

64.9

92.0

60.0

62.5

105.3

– Online Betting

0.0

0.0

0.0

0.0

0.0

2.7

18.8

86.2

98.7

– Other Online Games

0.0

0.0

0.0

0.0

0.0

0.0

10.6

119.5

137.3

– Other

(1.8)

(1.4)

(1.4)

(1.4)

(1.4)

(1.2)

0.0

0.0

0.0

Gross profit from gaming

613.5

625.3

546.2

564.7

598.2

622.1

421.2

681.7

885.2

Gross margin

44.5%

44.7%

39.1%

38.8%

38.7%

38.4%

37.3%

43.1%

42.7%

Payroll

(58.6)

(46.1)

(56.2)

(63.8)

(76.1)

(82.3)

(78.6)

(78.0)

(78.8)

% of NGR

6.0%

4.7%

6.0%

6.6%

7.3%

7.6%

10.7%

7.3%

5.5%

Marketing

(78.9)

(76.2)

(65.9)

(67.4)

(64.0)

(60.9)

(54.9)

(60.0)

(60.6)

% of NGR

8.1%

7.7%

7.1%

6.9%

6.2%

5.6%

7.4%

5.6%

4.3%

Other operating expenses

(153.2)

(254.6)

(140.4)

(155.0)

(138.4)

(117.4)

(112.7)

(117.0)

(118.2)

% of NGR

15.7%

25.8%

15.1%

15.9%

13.3%

10.8%

15.3%

10.9%

8.3%

Kaizen

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(126.3)

(145.3)

Total operating expenses

(290.7)

(376.9)

(262.5)

(286.2)

(278.4)

(260.7)

(246.2)

(381.3)

(402.8)

% of NGR

29.9%

38.2%

28.2%

29.4%

26.8%

24.0%

33.4%

35.5%

28.3%

Other income - extension of concession

0.0

0.0

0.0

0.0

0.0

0.0

42.5

227.2

240.6

Adjusted EBITDA

346.5

377.1

307.5

306.5

356.6

412.4

263.6

575.0

772.4

Margin (GGR)

25.2%

26.9%

22.0%

21.1%

23.1%

25.5%

23.3%

36.4%

37.2%

Margin (NGR)

35.6%

38.2%

33.0%

31.5%

34.3%

38.0%

35.8%

53.6%

54.2%

Source: OPAP data, Edison Investment Research

Gaming taxes and levies of 392.5m represented 34.7% of GGR in FY20 versus FY19’s 32.9%. The increase is due to the mix of higher-taxed online revenues, a lower revenue contribution from previously higher taxed Lotteries and Sports Betting. In addition, it includes the minimum GGR contribution of 50m on Instant and Passives. Since October 2020, GGR tax is consistent at 30% for all the ‘legacy’ games, Lotteries and Sports Betting, and Instant and Passives, VLTs and Horse Racing. In Q121, GGR tax of 68.6m represented 39.4% of GGR versus Q120’s 33.8% due to the above mix changes and Instants and Passives being encumbered with higher tax.

Agents’ commissions of 256m were 34.7% of NGR in FY20, a reduction versus FY19’s 35.7% due to the benefits of the new commissions and mix changes. Stoiximan benefits from no agents’ commission and OPAP’s online commission varies depending on how the customer is registered.

Operating expenses of 246m in FY20 were 6% lower than FY19’s 261m, benefitting from management’s cost saving initiatives, offset by the natural deleveraging of the cost base during COVID-19 and the consolidation of Stoiximan. In FY20, the line items for payroll, marketing and other operating costs included Stoiximan from December 2020, but as pro forma figures have been not provided we include a separate line item for Kaizen’s total operating costs in our forecast years, assuming it generates an EBITDA margin of 19%. Therefore, comparability between historic and forecast numbers for the line items is limited. Payroll declined by 5% y-o-y to 79m as headcount reduced by c 3% and marketing declined by 10% as spend was focused on promoting online. In Q121, marketing fell by 15% on a like-for-like basis given the closures but increased by c 27% due to Stoiximan. From FY20 to FY22, we forecast total operating cost growth of 64% to €403m, due to Stoiximan and the return of underlying costs post re-opening.

Other operating income related to the extension of the concession of 42.5m in FY20 is the new accounting entry required following the licence extension. In FY21 and FY22 it is forecast to represent a significant contributor to adjusted EBITDA at 227m (40% of total) and 241m (31%) respectively. For discussion of the accounting implications of the licence extension see our update note dated 7 December 2020.

Other operating income represents revenue earned by the Tora subsidiary, which leverages OPAP’s network to offer services such as pre-paid cards and the payment of utility bills. We understand this initiative is primarily aimed at driving traffic through stores.

Adjusted EBITDA of €772m in FY22 compares with FY19’s €412m. The main reconciling items between FY19 and FY22 are the consolidation of Stoiximan (€76m); growth in VLTs; lower GGR taxes; and other income for the licence extension (€241m).

Tax: the effective tax rate of 8.1% for FY20 was lower than the statutory rate of 24%, primarily due to there being no deferred tax accrual on the gain from the remeasurement of the previously held equity interest in Kaizen. For FY21 and FY22, we assume an effective rate of 26%.

Dividends: OPAP’s dividend policy is to distribute the bulk of its free cash flow. We assume the majority (90%) of ‘underlying’ cash flow (ie before the lower (5%) tax payments on GGR is distributed) and 50% of the enhanced free cash flow from lower GGR tax is distributed. We forecast a dividend per share in FY21 of 0.79 and FY22 of 1.24 versus FY20’s 0.55.

Exhibit 14: Dividend distribution

Source: OPAP data, Edison Investment Research

Cash flow and balance sheet

OPAP’s business model is very cash generative given the franchise structure, limited working capital and the fact that all licence payments have been made. Despite the disruption caused by COVID-19, the balance sheet remains robust.

At FY20, OPAP had gross debt of €1,041.9m, IFRS 16 lease liabilities of €57.7m and cash of €506.9m to give a net debt position of €591.7m, which equated to net debt/EBITDA of 2.4x, a higher ratio than the company’s recent history of 1.2–1.4x, mainly due to the negative effect of COVID-19 on OPAP’s financial results. In addition to the above, at the end of FY20, the company had short-term investments of €4.6m, giving an ‘adjusted’ net debt figure of €587.1m.

Compared to FY19, OPAP’s year-end cash position reduced by c €127m from €633.8m with the main drivers being lower operating cash flow (€186.4m vs €279.3m in FY19), M&A spend (€90.2m) and the payment of higher dividends (€214.7m vs €168.4m in FY19). Relative to NGR, OPAP’s operating cash flow generation in FY20 of 25.3% was broadly consistent with the prior year’s (25.7%), as the improved profitability was offset by an increase in working capital investment, higher interest payments and lower cash tax payments.

OPAP’s free cash flow (after interest and tax and including dividends received) for FY20 of €174.3m declined by just 30% y-o-y, in line with the decline in GRR but lower than the decline in NGR (32%) and EBITDA (36.9%).

At the end of Q121, OPAP’s gross debt position of €1,042.5m was broadly stable with the year-end debt position of €1,040.9m, and the net debt position including IFRS 16 had increased to €612.3m due to a total cash outflow of c €21m in Q121.

The recovery in underlying profitability, consolidation of Kaizen and more beneficial GGR levies will lead to strong growth in operating and free cash flow and an improving financial position. We assume further payments for Kaizen of €80m in FY21 and €50m in FY22. By the end of FY21 we forecast net debt (including lease liabilities) of €456m and €183m by the end of FY22.

Valuation

DCF: Basis for the valuation

We have performed a DCF valuation, with a terminal growth rate of 1.5% and a terminal EBITDA margin of 25% in 2031 to reflect the end of the concession in October 2030, which boosts the EBITDA margin to 37–38% during its term. We assume that OPAP pays €1bn between 2028 and 2029 to renew the Lotteries and Sports Betting licence beyond 2030. Using a WACC of 7.5% produces a value per share of €16.6. Our DCF valuation would equate to a P/E multiple for FY21e of 19.3x and FY22e of 12.8x, and dividend yields of 4.8% and 7.5%, respectively. Our WACC of 7.5% assumes a cost of equity of 8% comprised of a risk-free rate of 1%, risk premium of 7% and a Beta of 1.0 (source: Refinitiv) and a post-tax cost of debt of 2.6%. Exhibit 15 highlights the sensitivity of the DCF to changes in assumptions of the WACC and terminal growth rate.

Exhibit 15: DCF sensitivity (/share)

Terminal growth rate

0.5%

1.0%

1.5%

2.0%

2.5%

WACC

10.0%

11.2

11.4

11.7

12.1

12.4

9.5%

11.8

12.1

12.5

12.9

13.3

9.0%

12.5

12.9

13.3

13.8

14.3

8.5%

13.3

13.7

14.2

14.8

15.5

8.0%

14.2

14.7

15.3

16.0

16.8

7.5%

15.2

15.9

16.6

17.4

18.5

7.0%

16.4

17.2

18.1

19.1

20.5

6.5%

17.8

18.7

19.9

21.2

22.9

6.0%

19.4

20.6

22.0

23.8

26.1

5.5%

21.4

22.9

24.8

27.2

30.4

Source: Edison Investment Research

Peer group analysis

Although OPAP is a listed gaming business, its business model is different from the other listed European gaming companies (ie they are not monopolies, mostly do not participate in lotteries, and usually are far more reliant on online revenues).

We consider La Francaise des Jeux to be OPAP’s closest peer given its exposure to lotteries and scratch cards. As OPAP begins to grow its online presence, the comparison with other peers could become more relevant. OPAP trades at a discount to the broader average on all multiples and offers a higher dividend yield.

Exhibit 16: Peer group valuation

Company

Year-end

Share price (local ccy)

Currency

Market cap (€m)

Sales growth FY21 (%)

Sales growth FY22 (%)

EBIT margin FY21 (%)

EBIT margin FY22 (%)

EV/ EBIT FY21 (x)

EV/ EBIT FY22 (x)

P/E FY21 (x)

P/E FY22 (x)

Div yield FY21 (%)

Div yield FY21 (%)

888 Holdings PLC

31/12/21

386.6

£

1,677

5

6

12.7

13.0

14.9

13.6

19.0

17.5

2.8

2.9

bet-at-home.com AG

31/12/21

40.2

282

10

9

17.3

19.1

8.9

7.8

13.7

11.9

6.4

7.5

Betsson AB

31/12/21

74.4

SEK

900

8

5

17.7

15.8

7.9

7.9

9.9

10.1

5.1

4.8

Entain PLC

31/12/21

1,803.5

£

12,304

12

5

13.7

17.4

17.0

14.8

21.4

17.1

2.2

2.3

Flutter Entertainment PLC

31/12/21

13,900.0

£

28,394

12

12

13.8

15.8

27.3

23.0

32.4

26.7

1.4

1.6

La Francaise des Jeux SA

31/12/21

48.9

9,383

5

4

17.1

17.9

22.1

20.4

30.9

28.8

2.5

2.7

Gamesys Group PLC

31/12/21

1,859.0

£

2,377

10

10

23.2

23.5

11.3

10.8

10.6

9.5

2.3

2.5

Kindred Group PLC

31/12/21

144.8

SEK

3,259

8

9

22.4

15.8

10.9

10.3

13.6

12.8

4.2

5.0

LeoVegas AB (publ)

31/12/21

42.2

SEK

426

12

9

8.2

10.3

9.0

7.8

9.6

8.2

4.6

4.8

Rank Group PLC

30/06/21

178.2

£

977

105

14

(26.9)

8.9

17.6

10.8

21.8

11.4

0.6

1.4

Average

19

8

11.9

15.8

14.7

12.7

18.3

15.4

3.2

3.6

OPAP

31/12/21

13.6

4,643

40

31

27.4

30.3

11.4

7.8

15.8

10.5

5.8

9.1

OPAP premium/ (discount) to average

112%

280%

130%

92%

(23%)

(38%)

(14%)

(32%)

81%

157%

Source: Refinitiv, Edison Investment Research. Note: Priced at 14 June 2021.

Exhibit 17: Financial summary

€m

2018

2019

2020

2021e

2022e

Year end 31 December

ISA

ISA

ISA

ISA

ISA

INCOME STATEMENT

Revenue

 

 

1,547.0

1,619.9

1,129.8

1,581.6

2,074.6

NGR

 

 

1,039.9

1,086.2

737.3

1,072.9

1,424.4

Cost of Sales

(912.0)

(946.9)

(662.4)

(852.5)

(1,140.0)

Gross Profit

635.0

673.0

467.4

729.1

934.6

Other Income

42.5

227.2

240.6

EBITDA

 

 

356.6

411.2

263.6

575.0

772.4

Operating Profit (before amort. and except.)

 

 

261.4

305.2

148.7

433.0

628.6

Impairments

(17.5)

(8.7)

(36.8)

0.0

0.0

Exceptionals

(3.0)

(7.1)

(21.5)

0.0

0.0

Share-based payments

(1.6)

(1.6)

(0.8)

(0.8)

(0.8)

Reported operating profit

239.3

287.8

89.6

432.2

627.8

Net Interest

(23.5)

(27.1)

(33.5)

(25.2)

(19.2)

Joint ventures & associates (post tax)

0.1

8.5

18.2

0.2

0.2

Profit Before Tax (norm)

 

 

238.0

286.6

133.4

408.0

609.6

Profit Before Tax (reported)

 

 

215.9

269.2

74.3

407.2

608.8

Reported tax

(70.6)

(67.1)

(17.6)

(106.1)

(158.5)

Profit After Tax (norm)

169.0

217.8

101.4

301.9

451.1

Profit After Tax (reported)

145.3

202.1

56.7

301.1

450.3

Minority interests

(2.0)

0.3

6.0

(8.3)

(9.9)

Net income (normalised)

167.0

218.1

107.4

293.7

441.3

Net income (reported)

143.3

202.4

62.7

292.9

440.4

Average Number of Shares Outstanding (m)

318

318

334

341

341

EPS - normalised (€)

 

 

0.53

0.68

0.32

0.86

1.29

EPS - normalised fully diluted (€)

 

 

0.53

0.68

0.32

0.86

1.29

EPS - basic reported (€)

 

 

0.45

0.64

0.19

0.86

1.29

Dividend (€)

0.70

1.30

0.55

0.79

1.24

Revenue growth (%)

6.3

4.7

(30.3)

40.0

31.2

Gross Margin (%)

41.0

41.5

41.4

46.1

45.1

EBITDA Margin (%)

23.1

25.4

23.3

36.4

37.2

Normalised Operating Margin

16.9

18.8

13.2

27.4

30.3

BALANCE SHEET

Fixed Assets

 

 

1,384.8

1,370.1

1,691.1

1,653.3

1,583.7

Intangible Assets

1,157.2

1,096.0

1,464.1

1,446.3

1,396.6

Tangible Assets

111.5

162.3

127.5

107.5

87.6

Investments & other

116.1

111.7

99.5

99.5

99.5

Current Assets

 

 

388.6

869.9

629.1

825.2

1,111.1

Stocks

10.7

7.0

6.2

8.6

11.3

Debtors

140.2

161.2

68.5

126.5

186.7

Cash & cash equivalents

182.0

633.8

506.9

642.5

865.4

Other

55.7

67.9

47.6

47.6

47.6

Current Liabilities

 

 

(314.0)

(326.4)

(366.1)

(406.4)

(444.8)

Creditors

(177.5)

(184.1)

(149.4)

(189.8)

(228.2)

Tax and social security

(12.8)

(1.8)

(27.8)

(27.8)

(27.8)

Short term borrowings

(0.2)

(13.9)

(40.7)

(40.7)

(40.7)

Other

(123.6)

(126.7)

(148.2)

(148.2)

(148.2)

Long Term Liabilities

 

 

(699.8)

(1,141.6)

(1,199.3)

(1,193.0)

(1,190.4)

Long term borrowings

(650.3)

(1,103.2)

(1,057.9)

(1,057.9)

(1,007.9)

Other long term liabilities

(49.5)

(38.4)

(141.3)

(135.1)

(182.5)

Net Assets

 

 

759.5

771.9

754.9

879.1

1,059.5

Minority interests

(36.8)

(18.1)

(15.3)

(23.5)

(33.4)

Shareholders' equity

 

 

722.8

753.8

739.6

855.6

1,026.1

CASH FLOW

Op Cash Flow before WC and tax

358.2

412.9

264.4

575.8

773.2

Working capital

(25.0)

(16.5)

(34.8)

(20.2)

(24.5)

Exceptional & other

(1.9)

(13.8)

4.0

(7.1)

46.6

Tax

(51.7)

(78.9)

(12.1)

(106.1)

(158.5)

Net operating cash flow

 

 

279.7

303.6

221.4

442.5

636.8

Net interest

(24.6)

(22.3)

(32.5)

(25.2)

(19.2)

Capex

(52.1)

(34.7)

(18.9)

(25.0)

(25.0)

Acquisitions/disposals

(48.0)

(22.0)

(90.2)

(80.0)

(50.0)

Equity financing

(12.1)

(0.1)

(0.1)

0.0

0.0

Dividends

(130.7)

(168.4)

(214.7)

(176.9)

(269.9)

Net new borrowings

(32.3)

399.7

(12.1)

0.0

(50.0)

Other

(34.6)

(4.0)

20.0

0.2

0.2

Net Cash Flow

(54.8)

451.8

(126.9)

135.6

222.9

Opening cash

 

 

236.8

182.0

633.8

506.9

642.5

Closing cash

 

 

182.0

633.8

506.9

642.5

865.4

Closing net debt/(cash)

 

 

468.5

483.3

591.7

456.1

183.2

Source: OPAP data, Edison Investment Research

Contact details

Revenue by geography

OPAP
Athinon Av 112
Athens PC 104 42

Greece

+30 210 5798930
www.opap.gr

Contact details

OPAP
Athinon Av 112
Athens PC 104 42

Greece

+30 210 5798930
www.opap.gr

Revenue by geography

Management team

CEO: Jan Karas

Executive chairman: Kamil Ziegler

Jan joined OPAP in 2014 and became CEO in January 2021. Previous experience includes senior executive positions in marketing, sales and product development in the telecommunications sector.

Former CEO and current board member of Sazka, the Czech lottery operator. Previous experience includes chairman and CEO of Czech state-owned Consolidation Bank, board member of PPF Group and deputy CEO and board member of Czech Savings Bank.

CFO: Pavel Mucha

Pavel became CFO in October 2019 having joined from Sazka where he was CFO. Prior roles tax consultant at Price Waterhouse, and various finance positions in pharmaceutical and FMCG companies.

Management team

CEO: Jan Karas

Jan joined OPAP in 2014 and became CEO in January 2021. Previous experience includes senior executive positions in marketing, sales and product development in the telecommunications sector.

Executive chairman: Kamil Ziegler

Former CEO and current board member of Sazka, the Czech lottery operator. Previous experience includes chairman and CEO of Czech state-owned Consolidation Bank, board member of PPF Group and deputy CEO and board member of Czech Savings Bank.

CFO: Pavel Mucha

Pavel became CFO in October 2019 having joined from Sazka where he was CFO. Prior roles tax consultant at Price Waterhouse, and various finance positions in pharmaceutical and FMCG companies.

Principal shareholders

(%)

Sazka Group

44.1

Alliance Bernstein

2.1

Vanguard Group

1.9

APG Asset Management

1.3

Genesis Investment Management

1.2

Blackrock

1.1


General disclaimer and copyright

This report has been commissioned by OPAP and prepared and issued by Edison, in consideration of a fee payable by OPAP. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by OPAP and prepared and issued by Edison, in consideration of a fee payable by OPAP. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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