Surprising extraordinary dividend for Q120

OPAP 28 November 2019 Update
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OPAP

Surprising extraordinary dividend for Q120

Q319 results

Travel & leisure

28 November 2019

Price

€10.4

Market cap

€3344m

Net debt (€m) at September 2019, post IFRS 16

549.8

Shares in issue

321.6m

Free float

60%

Code

OPAP

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.7

13.0

26.8

Rel (local)

4.0

5.0

(14.4)

52-week high/low

€10.4

€7.6

Business description

OPAP was founded in 1958 as the Greek national lottery and it is the exclusive licensed operator of all numerical lotteries (seven games), sports betting (four games) and horse racing. OPAP listed in 2001 and was fully privatised in 2013. Sazka Group has significant board representation and a 40% holding.

Next events

FY19 results

March 2020

Analysts

Victoria Pease

+44 (0)20 3077 5740

Richard Williamson

+44 (0)20 3077 5700

OPAP is a research client of Edison Investment Research Limited

OPAP’s Q319 results saw similar trends to H119 and were in line with our estimates. Gross gaming revenues (GGR) increased 6.7% to €393.6m, driven by a 43.2% increase in video lottery terminals (VLT) GGR and a stronger lottery performance. Alongside revenue growth, OPAP is successfully containing costs, which led to a 25.8% EBITDA margin and a 24.5% increase in net profit. OPAP has announced that it will pay an extraordinary dividend in Q120 (rather than an interim dividend) – on our estimates this equates to an 11.9% dividend yield for FY19. For FY20, OPAP trades at 8.6x EV/EBITDA and 15.2x P/E with an 8.9% dividend yield.

Year end

GGR
(€m)

EBITDA
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

1,455.5

306.5

0.42

1.10

24.5

10.6

12/18

1,547.0

353.6

0.52

0.70

20.0

6.7

12/19e

1,635.0

408.9

0.62

1.24

16.9

11.9

12/20e

1,833.0

456.7

0.69

0.92

15.2

8.9

Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Continuing trends from H119

Q319 GGR grew 6.7% to €393.6m, driven by a 43.2% increase in VLT GGR to €72.8m and good progress in lottery (up 4.1% to €197.4m), as well as a recovery in Instants and Passives. Sports betting declined by 5.7% to €91.9m, with difficult comparatives from the previous year (World Cup in FY18). Alongside the revenue growth, cost containment remains a key focus and the Q319 EBITDA margin was a solid 25.8% (up 220bps). Our FY20 and FY21 EPS are raised by c 4.5% and 2.8% largely due to lower future corporation tax (the effective rate goes from 29% to 24% from FY20).

Online regulation and Stoiximan poised for FY20

OPAP’s acquisition of Stoiximan (online sports) has recently been approved by the Hellenic Competition Commission and the final closing of the transaction is expected in the near term. As detailed in our September update, our forecasts assume full consolidation from January 2020. Online regulation in Greece is still pending, with legislation expected in FY20 and we expect OPAP will seek to apply for one of the new licences once proper regulation is in place.

Valuation: 11.9% dividend yield for FY19e

OPAP reported Q319 net debt of €485m (€550m post IFRS 16) and the net debt/LTM EBITDA was 1.2x. OPAP has announced that it will pay an extraordinary dividend in Q120 of no less than the FY19 net profit. Together with the final dividend, we estimate a total FY19 dividend of €1.24/share, which equates to an 11.9% dividend yield for FY19. For FY20, the stock trades at 8.6x EV/EBITDA and 15.2x P/E with a very attractive dividend (excluding exceptionals) of 8.9%.

Q319 results summary: Similar trends to H119

Q319 GGR increased by 6.7%, driven by lottery and VLTs

Q319 GGR increased 6.7% to €393.6m, boosted by the contribution of new products. This included a 43.2% increase in VLTs (18.5% of revenues), as well as lasting positive momentum from Kino side bets and improved Joker products, which led to an uptick in lottery (a 4.1% increase to €197.4m). Betting declined by 5.7% (to €91.9m), although the core Pame Stoixima product was stable, despite difficult comps (FIFA World Cup in 2018). Instants and passives posted a 1.8% recovery in the quarter, reaching €31.6m.

Adjusted EBITDA margin of 25.8%: Successful cost containment

Q319 adjusted EBITDA increased by 16.5% to €101.6m, representing a 25.8% margin (vs 23.6% in the prior year). Key cost containment measures included a significant drop in IT costs, which declined by 36.7% to €7.3m in Q319.

Extraordinary dividend to be paid in Q120

OPAP has announced that it intends to pay an extraordinary dividend in Q120, which will be no less than the net profit for FY19. There will be no interim dividend and the extraordinary dividend will be financed through existing cash balances as well as additional external debt. Altogether, we estimate an extraordinary dividend of €0.62/share (equating to our FY19 normalised EPS forecast), as well as a final dividend of €0.62/share.

Sazka Group now a 40% shareholder

As previously announced, Sazka Group has completed its tender offer for OPAP shares. During the acceptance period, approximately 7.25% of shares were offered and Sazka Group now holds 40% of OPAP’s total paid-up capital.

Stoiximan: Approval granted by the Hellenic Competition Authority

In September 2018, OPAP announced the acquisition of a 36.75% stake in TCB Holdings (the holding company of Stoixman) for €50m, followed by a further €94.9m investment in January 2019. As a result, OPAP will have a 69% controlling stake in TCB’s Greek and Cypriot operations and a 36.75% stake in the other markets.

The acquisition of Stoiximan was approved in November by the Hellenic Competition Commission (HCC) and the transaction is expected to complete in the near term. We continue to forecast full consolidation from January 2020.

Online regulation in Greece

In October, the Greek government presented an amended online gambling bill for legislative scrutiny. We understand that there may be a change to the tax code, whereby corporation tax will be applied to net income prior to gambling duties (rather than after). We expect further details in due course, with possible regulation in FY20.

In September, it was also reported that Greece’s highest administrative court, the Council of State, has ruled that OPAP’s online betting licence is invalid, leading to its potential revocation. The ruling is of little practical relevance, given that current contribution of online betting is not material (below 1% of OPAP’s total revenue) and going forward, OPAP will principally offer online sports through Stoiximan. Nonetheless, OPAP is challenging the decision, since it would likely still prefer to offer a dual brand online option. We believe OPAP is likely to acquire one of the new licences following the proper regulation of the market ahead.

Forecasts: FY20 and FY21 EPS upgrades due to tax changes

Our revenue forecasts remain broadly unchanged, although we have slightly lowered our FY20 and FY21 EBITDA forecasts to be more conservative on costs. Our FY20 and FY21 EPS go up by c 4.5% and 2.8%, largely due to lower corporate tax in Greece (the effective rate goes from 29% to 24%).

OPAP reported Q219 net debt of €485m (€550m post-IFRS 16) and the net debt/LTM EBITDA was 1.2x. Post IFRS 16, we forecast net debt of €474m in FY19 which is lower than our previous estimate of €494m, largely due to the lack of interim dividend in the period. We forecast net debt of €606m at FY20, which includes the €94m investment in Stoiximan, as well as the extraordinary dividend.

Exhibit 1: Estimate changes

GGR (€m)

EBITDA (€m)

Normalised EPS (€)

Old

New

% chg.

Old

New

%chg.

Old

New

%chg.

2019e

1,635.0

1,635.0

0.0

408.7

408.9

0.0

0.60

0.62

3.3

2020e

1,845.0

1,833.0

(0.6)

465.0

456.7

(1.8)

0.66

0.69

4.5

2021e

1,897.1

1,884.6

(0.6)

489.3

480.6

(1.8)

0.70

0.72

2.8

Source: Edison Investment Research estimates

Exhibit 2: Financial summary

€'m

2014

2015

2016

2017

2018

2019e

2020e

2021e

31-December

ISA

ISA

ISA

ISA

ISA

ISA

ISA

ISA

INCOME STATEMENT

GGR

 

 

1,377.7

1,399.7

1,397.6

1,455.5

1,547.0

1,635.0

1,833.0

1,884.6

NGR

 

 

973.1

987.7

930.8

972.9

1,039.9

1,101.9

1,233.4

1,268.7

Cost of Sales

(764.2)

(774.3)

(827.5)

(862.9)

(904.3)

(947.0)

(1,029.9)

(1,053.3)

Gross Profit

613.5

625.3

570.1

592.6

642.7

688.0

803.1

831.4

EBITDA

 

 

346.5

377.1

307.5

306.5

353.6

408.9

456.7

480.6

Normalised operating profit

 

 

289.6

318.1

252.4

218.8

258.4

296.6

329.0

351.1

Impairments

7.5

(14.1)

0.0

(2.7)

(17.5)

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

7.9

0.0

0.0

Share-based payments

(0.9)

(1.2)

(3.1)

(1.5)

(1.6)

(1.7)

(1.7)

(1.7)

Reported operating profit

296.2

302.8

249.3

214.6

239.3

302.8

327.3

349.5

Net Interest

1.6

(4.7)

(13.3)

(21.1)

(23.5)

(25.3)

(29.1)

(30.7)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

6.6

0.0

0.0

Other

7.8

1.5

1.0

(0.3)

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

299.0

314.9

240.0

197.5

234.9

277.9

299.9

320.4

Profit Before Tax (reported)

 

 

305.6

299.6

236.9

193.2

215.9

284.1

298.2

318.8

Reported tax

(106.4)

(89.7)

(64.1)

(61.6)

(70.6)

(84.4)

(72.0)

(76.9)

Profit After Tax (norm)

212.3

223.6

170.4

140.2

166.8

198.2

227.9

243.5

Profit After Tax (reported)

199.2

209.9

172.9

131.6

145.3

199.7

226.3

241.8

Minority interests

(4.2)

0.8

(2.6)

(5.4)

(2.0)

0.3

(6.3)

(6.9)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

208.1

224.4

167.8

134.8

164.8

198.4

221.6

236.6

Net income (reported)

195.0

210.7

170.2

126.2

143.3

199.9

220.0

234.9

Basic average number of shares outstanding (m)

319

319

319

318

318

322

323

327

EPS - basic normalised (€)

 

 

0.65

0.70

0.53

0.42

0.52

0.62

0.69

0.72

EPS - diluted normalised (€)

 

 

0.65

0.70

0.53

0.42

0.52

0.62

0.69

0.72

EPS - basic reported (€)

 

 

0.61

0.66

0.53

0.40

0.45

0.62

0.68

0.72

Dividend (€)

0.70

0.40

1.29

1.10

0.70

1.24

0.92

0.96

Revenue growth (%)

1.6

(-0.2)

4.1

6.3

5.7

12.1

2.8

Gross Margin (%)

44.5

44.7

40.8

40.7

41.5

42.1

43.8

44.1

EBITDA Margin (%)

25.2

26.9

22.0

21.1

22.9

25.0

24.9

25.5

Normalised Operating Margin

21.0

22.7

18.1

15.0

16.7

18.1

17.9

18.6

BALANCE SHEET

Fixed Assets

 

 

1,343.4

1,318.9

1,330.3

1,356.5

1,384.2

1,393.7

1,379.3

1,268.1

Intangible Assets

1,284.2

1,237.2

1,231.0

1,218.5

1,157.2

1,104.1

1,070.5

987.7

Tangible Assets

44.2

56.2

67.6

109.3

111.5

168.6

187.7

159.4

Investments & other

15.0

25.5

31.7

28.7

115.5

121.0

121.0

121.0

Current Assets

 

 

409.4

389.9

437.4

440.4

385.5

439.8

507.1

500.5

Stocks

3.0

4.2

12.5

7.9

10.7

12.7

17.7

22.7

Debtors

92.3

55.2

80.6

127.8

138.3

133.3

128.3

123.3

Cash & cash equivalents

297.4

301.7

273.5

246.1

182.6

243.8

311.1

304.5

Other

16.7

28.8

70.8

58.5

54.0

50.0

50.0

50.0

Current Liabilities

 

 

(457.9)

(325.0)

(390.2)

(482.0)

(299.3)

(303.5)

(288.5)

(273.5)

Creditors

(170.4)

(127.1)

(149.3)

(173.9)

(176.7)

(146.7)

(131.7)

(116.7)

Tax and social security

(178.2)

(129.9)

(55.5)

(89.8)

(8.6)

(13.6)

(13.6)

(13.6)

Short term borrowings

(0.0)

(32.1)

(118.7)

(169.2)

(0.2)

(7.2)

(7.2)

(7.2)

Other

(109.3)

(35.9)

(66.7)

(49.2)

(113.8)

(136.0)

(136.0)

(136.0)

Long Term Liabilities

 

 

(59.8)

(181.0)

(305.3)

(556.7)

(710.8)

(792.1)

(992.1)

(892.1)

Long term borrowings

0.0

(115.0)

(263.0)

(513.1)

(650.3)

(710.3)

(910.3)

(810.3)

Other long term liabilities

(59.8)

(66.0)

(42.3)

(43.6)

(60.6)

(81.8)

(81.8)

(81.8)

Net Assets

 

 

1,235.1

1,202.8

1,072.2

758.2

759.5

737.8

605.7

603.0

Minority interests

(67.4)

(41.0)

(37.0)

(43.4)

(36.8)

(38.0)

(42.0)

(44.0)

Shareholders' equity

 

 

1,167.7

1,161.8

1,035.3

714.8

722.8

699.8

563.7

559.0

CASH FLOW

Op Cash Flow before WC and tax

347.4

378.3

310.7

308.0

355.2

410.6

458.3

482.3

Working capital

7.0

(41.0)

(71.9)

(9.2)

(25.0)

(25.0)

(10.0)

(10.0)

Exceptional & other

1.0

9.1

(12.4)

(0.4)

1.1

(4.3)

0.0

0.0

Tax

(68.8)

(142.5)

(116.9)

(31.4)

(51.7)

(74.4)

(62.0)

(66.9)

Net operating cash flow

 

 

286.6

203.9

109.4

266.9

279.6

306.8

386.4

405.4

Capex

(18.6)

(39.6)

(42.9)

(96.3)

(51.9)

(30.0)

(20.0)

(20.0)

Acquisitions/disposals

(18.6)

(0.8)

(0.0)

(31.5)

(47.9)

(22.0)

(94.9)

0.0

Net interest

1.6

(4.2)

(11.9)

(19.6)

(24.6)

(25.3)

(29.1)

(30.7)

Equity financing

(8.3)

(24.2)

(11.9)

(1.8)

(5.5)

0.0

0.0

0.0

Dividends

(79.8)

(277.3)

(292.8)

(446.1)

(154.0)

(168.4)

(368.8)

(254.4)

Other

48.1

(0.7)

(12.7)

0.3

(18.6)

0.0

(6.3)

(6.9)

Net Cash Flow

211.0

(142.9)

(262.8)

(328.0)

(22.8)

61.1

(132.7)

93.4

Opening net debt/(cash)

 

 

(86.4)

(297.4)

(154.5)

108.3

436.2

467.9

473.7

606.4

FX

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

(8.9)

(67.0)

0.0

0.0

Closing net debt/(cash)

 

 

(297.4)

(154.5)

108.3

436.2

467.9

473.7

606.4

513.0

Source: OPAP accounts, Edison Investment Research estimates

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Australia

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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.

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United States

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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

1,185 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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