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Currency in EUR
Last close As at 09/06/2023
EUR16.00
▲ 0.25 (1.59%)
Market capitalisation
EUR5,723m
Research: Consumer
OPAP’s Q122 results showed a strong improvement from the prior year as it enjoyed a full period of (relatively) uninterrupted trading in its land-based locations, with a compensating moderation in the contribution from online revenue. The strong revenue recovery fed through to an improved EBITDA margin as management continues to control costs well on a relative basis as operations ramped up. Our forecasts are unchanged. The share price valuation and prospective dividend yield of 8.5% remain attractive versus quoted peers.
OPAP |
Strong retail recovery in Q122 |
Q122 results |
Travel & leisure |
8 June 2022 |
Share price performance
Business description
Next events
Analysts
OPAP is a research client of Edison Investment Research Limited |
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OPAP’s Q122 results showed a strong improvement from the prior year as it enjoyed a full period of (relatively) uninterrupted trading in its land-based locations, with a compensating moderation in the contribution from online revenue. The strong revenue recovery fed through to an improved EBITDA margin as management continues to control costs well on a relative basis as operations ramped up. Our forecasts are unchanged. The share price valuation and prospective dividend yield of 8.5% remain attractive versus quoted peers.
Year end |
GGR* |
EBITDA** |
EPS** |
DPS |
P/E |
Yield |
12/20 |
1,129.8 |
263.9 |
0.32 |
0.55 |
44.2 |
3.9 |
12/21 |
1,538.8 |
551.2 |
0.82 |
1.50 |
17.1 |
10.7 |
12/22e |
2,170.9 |
721.7 |
1.19 |
1.19 |
11.8 |
8.5 |
12/23e |
2,213.6 |
727.4 |
1.22 |
1.21 |
11.6 |
8.6 |
12/24e |
2,261.8 |
740.7 |
1.25 |
1.25 |
11.2 |
8.9 |
Note: *GGR = gross gaming revenue. **EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q122: Strong retail recovery, online moderation
Q122 gross gaming revenue (GGR or revenue) grew by c 162% y-o-y to €457.2m due to a near sixfold increase in retail revenue (to €352m) as there were no COVID-related closures during the period as there were in Q121. EBITDA increased at a greater rate than revenue, by 175% to €166.3m, due to lower levies and duties and operating costs, relative to revenue. A lower corporate tax rate, offset by a modestly higher net financial charge, led to more significant growth, an almost ninefold increase in profit after tax to €89.9m. OPAP’s higher profitability and a modest, more favourable working capital outflow than the prior year helped to fund the repayment of €210m of debt, and an improved net debt position of €91.5m (including lease liabilities of €49.1m) at the end of Q122 versus €237.3m at the end of FY21.
Forecasts: Unchanged
Management has reiterated its financial guidance for FY22, revenue expectations of €2.175–2.215bn (y-o-y growth of 41–44%) and EBITDA of €720–740m (growth of 31–34%). The guidance requires an improvement in the quarterly run rate of revenue and profit from that delivered in Q122, which is consistent with OPAP’s typical seasonality prior to COVID. Our forecasts, which are in line with the bottom end of the guidance, are unchanged.
Valuation: Discount to peers
OPAP’s share price continues to trade at a discount to its quoted peers, while offering a superior dividend yield, which is supported by the strong balance sheet. Our DCF-based valuation indicates a fair value of c €18.3 per share (€18 previously), mainly reflecting the improved net financial position at the end of Q122.
Q122 results: Retail open for full period
Income statement: Revenue recovery and margin expansion
OPAP’s GGR increased by c 162% to €457.2m in Q122, which fed through to a modestly greater 175% increase in EBITDA to €166.3m, a margin of 36.4% versus 34.9% in Q121. Note that our definition of EBITDA differs slightly from the company’s €168.8m as we exclude the associate contribution of €2.7m and one-off costs of €0.1m. A higher net finance charge (€15.5m in Q122 versus €11.0m in Q121, implying a higher average interest rate on lower average gross debt) but significantly lower effective tax rate (24.8% in Q122 versus 34.9% in Q121) led to a much improved, ie almost ninefold, increase in profit after tax from €9.2m to €89.9m in Q122.
Exhibit 1: Summary income statement
€m |
Q121 |
Q122 |
Gross gaming revenue (GGR) |
174.2 |
457.2 |
Growth y-o-y |
162.5% |
|
GGR contribution and levies |
(68.6) |
(144.6) |
As % of GGR |
39.4% |
31.6% |
Net gaming revenue (NGR) |
105.6 |
312.6 |
As % of NGR |
60.6% |
68.4% |
Payroll expense |
(18.6) |
(20.2) |
Growth y-o-y |
8.5% |
|
As % of GGR |
10.7% |
4.4% |
Marketing |
(16.0) |
(23.3) |
Growth y-o-y |
45.2% |
|
As % of GGR |
9.2% |
5.1% |
Other operating expenses |
(29.8) |
(45.0) |
Growth y-o-y |
51.0% |
|
As % of GGR |
17.1% |
9.8% |
Operating income - licence extension |
45.5 |
56.6 |
EBITDA (Edison) |
60.7 |
166.3 |
Margin |
34.9% |
36.4% |
Growth y-o-y |
173.9% |
|
Associates |
0.1 |
2.7 |
One-offs |
0.6 |
(0.1) |
EBITDA (OPAP) |
61.3 |
168.8 |
Margin |
35.2% |
36.9% |
Growth y-o-y |
175.2% |
|
Net finance costs |
(11.0) |
(15.5) |
Reported profit before tax |
14.2 |
119.5 |
Tax |
(5.0) |
(29.6) |
Effective rate |
34.9% |
24.8% |
Reported profit after tax |
9.2 |
89.9 |
Growth y-o-y |
874.7% |
Source: OPAP, Edison Investment Research
The company’s revenue growth in Q122 was driven by the recovery in its retail, ie land-based activities, which were open for the whole period, albeit with some restrictions, versus the prior year when there were COVID-related closures and/or other partial restrictions. Revenue for the (mainly) retail activities grew as follows: Lottery by 364% y-o-y to €170m (includes €4m online), Sports Betting increased almost sevenfold to €93m, Instant & Passives doubled to €23.5m and VLTs (video lottery terminals) contributed €69.4m revenue versus zero in Q121. Although the retail operations were open for the full period, management believes the green pass (access to stores restricted to people who are vaccinated) and the mandatory wearing of masks for those able to enter the stores dampened the rate of recovery. Phasing out the green pass (from 1 May 2022) and mandatory mask wearing (from 1 June) are expected to be positive for revenue growth in future periods. We show in Exhibit 2 that VLT revenue in Q122 has recovered quickly and is already higher than pre-COVID levels of Q119, while Lottery, Sports Betting and Instant & Passives remain well below Q119 levels.
Exhibit 2: OPAP’s gross gaming revenue
€m |
Q119 |
Q120 |
Q121 |
Q122 |
Q122 vs Q119 |
Gross gaming revenue |
396.0 |
328.3 |
174.2 |
457.2 |
15% |
Growth y-oy |
(17%) |
(47%) |
162% |
||
Lottery |
191.7 |
154.5 |
36.6 |
170.0 |
-11% |
Growth y-o-y |
(19%) |
(76%) |
364% |
||
% of total |
48% |
47% |
21% |
37% |
|
Sports Betting |
101.7 |
88.0 |
12.0 |
93.0 |
-9% |
Growth y-o-y |
(14%) |
(86%) |
675% |
||
% of total |
26% |
27% |
7% |
20% |
|
Instant & Passives |
33.7 |
19.2 |
7.9 |
23.5 |
-30% |
Growth y-o-y |
(43%) |
(59%) |
199% |
||
% of total |
9% |
6% |
5% |
5% |
|
VLTs |
68.9 |
66.6 |
0.0 |
69.4 |
1% |
Growth y-o-y |
(3%) |
(100%) |
N/A |
||
% of total |
17% |
20% |
0% |
15% |
|
Online Betting |
0.0 |
0.0 |
70.4 |
59.8 |
N/A |
Growth y-o-y |
N/A |
N/A |
(15%) |
||
% of total |
0% |
0% |
40% |
13% |
|
Other Online Games |
0.0 |
0.0 |
47.3 |
41.5 |
N/A |
Growth y-o-y |
N/A |
N/A |
(12%) |
||
% of total |
0% |
0% |
27% |
9% |
Source: OPAP
As retail recovered, there was a natural reduction in OPAP’s total online revenue (online betting, other online games and online included in other divisions) to €105m from €122m in the prior year. The y-o-y and sequential, ie q-o-q, increase in active monthly players for both OPAP and Stoiximan, implies a lower spend per active online customer.
|
Exhibit 3: Online GGR by brand (€m) |
Exhibit 4: Active monthly online players (‘000s) |
|
|
|
Source: OPAP |
Source: OPAP |
|
Exhibit 3: Online GGR by brand (€m) |
|
|
Source: OPAP |
|
Exhibit 4: Active monthly online players (‘000s) |
|
|
Source: OPAP |
The new online random number generator (RNG) casino regulations came into effect on 21 May 2022. The regulations increased the maximum bet limit per click to €20 (from €2 previously), maximum winning per round increased to €140k (from €70k) and intervals between clicks reduced to two seconds (from three seconds). Management has launched hundreds of new games that adopted the new limits, with initial results showing a 15% improvement in GGR versus before the relaxation of restrictions.
The contributors to OPAP’s EBITDA margin expansion during the period were a lower GGR contribution and levies (greater relative contribution from retail revenues that are liable to lower rates of levies and duties (30% of GGR) versus online revenues (35% of GGR), personnel, marketing and other operating expenses, all relative to revenue, highlighting continued good cost control despite the ramping up of its retail operations.
Cash flow and balance sheet: Cash generation, reduced net debt
OPAP’s free cash flow generation pre interest improved significantly, an inflow of €155.6m in Q122 versus an outflow of €14.9m in Q121, due mainly to higher reported profit before tax (a positive year-on-year change of c €105m) and a modest more favourable working capital outflow. The improved free cash flow helped to fund the repayment of €210m of debt so that OPAP’s closing cash balance of €797.6m was lower than the end-FY21 position of €860.4m, leading to an improved net debt position of €91.5m (including lease liabilities of €49.1m) versus €237.3m at the end of FY21. Note that our definition of net debt differs slightly from the company’s (€87.9m at end Q122) as we exclude short-term investments (€3.6m).
Management’s FY22 guidance: Reiterated
Management reiterated its financial guidance for FY22: GGR of €2.175–2.215bn (y-o-y growth of 41–44%) , and EBITDA of €720–740m (growth of 31–34%). The revenue growth rates reflect lower anticipated COVID-related disruption to operations, and the lower margin is due to the growing importance of online where competition is higher. Management remains cautious about the macroeconomic and sector dynamics given the war in Ukraine and current inflationary pressures, with the latter expected to ease in FY23.
Q122’s GGR of €457.2m and EBITDA (OPAP definition) of €168.8m represent 21% and 23% of the low end of management’s guidance, which therefore implies a further improvement in the quarterly run rate of revenue and profits. Q3 and Q4 are typically seasonally important periods from a financial perspective. Our forecasts for FY22–24 are unchanged.
Valuation
Our unchanged forecasts and OPAP’s improved net debt position at the end of Q122 lead to an increase in our DCF-based valuation to €18.3 per share (€18 previously).
We show below updated consensus estimates for sales growth and profitability and valuations for OPAP’s peers. 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 have a higher percentage of online revenue).
We consider La Francaise des Jeux to be OPAP’s closest peer given its exposure to lotteries and scratch cards. Valuations for some companies reflect hopes for higher growth in the US market, as well as concerns about imminent potential regulation changes. We exclude bet-at-home.com from the average of the peers given the regulatory and operational changes the business is facing. As OPAP begins to grow its online presence, comparison with other peers will likely become more relevant. OPAP trades at a discount to the broader average on EV/EBIT and P/E multiples for CY22 and CY23, and its dividend policy means it offers a superior dividend yield.
Exhibit 5: Peer valuation
Company |
Year |
Share price |
Ccy |
Market cap (€m) |
Sales growth CY22 (%) |
Sales growth CY23 (%) |
EBIT mgn CY22 (%) |
EBIT mgn CY23 (%) |
EV/ EBIT CY22 (x) |
EV/ EBIT CY23 (x) |
P/E CY22 (x) |
P/E CY23 (x) |
Div yield CY22 (%) |
Div yield CY23 (%) |
888 Holdings |
Dec |
207.2 |
GBP |
1,080 |
1 |
8 |
17.9 |
20.8 |
5.2 |
4.2 |
9.9 |
7.5 |
4.9 |
4.4 |
bet-at-home.com |
Dec |
12.5 |
EUR |
88 |
N/A |
(5) |
0.4 |
2.5 |
238.6 |
36.7 |
418.0 |
78.4 |
0.0 |
0.0 |
Betsson |
Dec |
64.9 |
SEK |
756 |
6 |
10 |
13.5 |
14.0 |
8.1 |
7.1 |
10.5 |
9.1 |
4.8 |
5.5 |
Entain |
Dec |
1,437 |
GBP |
9,870 |
14 |
6 |
15.5 |
18.6 |
15.3 |
12.1 |
18.6 |
13.5 |
1.7 |
2.0 |
Flutter Entertainment |
Dec |
9,192 |
GBP |
18,867 |
14 |
17 |
11.1 |
15.0 |
24.7 |
15.6 |
30.2 |
18.0 |
1.9 |
2.4 |
La Francaise des Jeux |
Dec |
34.1 |
EUR |
6,516 |
5 |
4 |
18.2 |
18.0 |
14.7 |
14.2 |
20.3 |
19.1 |
4.1 |
4.3 |
Kindred Group |
Dec |
96.8 |
GBP |
2,096 |
(10) |
20 |
9.9 |
14.3 |
15.6 |
9.0 |
19.1 |
10.9 |
3.1 |
4.4 |
LeoVegas (publ) |
Dec |
60.3 |
SEK |
562 |
10 |
11 |
8.1 |
9.4 |
17.6 |
13.6 |
22.4 |
14.4 |
3.1 |
3.5 |
Rank Group |
Jun |
109.0 |
GBP |
596 |
45 |
9 |
6.8 |
7.1 |
12.9 |
11.5 |
7.7 |
7.0 |
3.8 |
3.4 |
Average ex bet-at-home.com |
11 |
11 |
12.6 |
14.7 |
14.3 |
10.9 |
17.3 |
12.4 |
3.4 |
3.8 |
||||
OPAP |
Dec |
14.1 |
EUR |
4,935 |
41 |
2 |
26.8 |
26.6 |
8.6 |
8.5 |
11.8 |
11.6 |
8.5 |
8.6 |
OPAP premium/(discount) to average |
282% |
(82%) |
112% |
81% |
(39%) |
(22%) |
(32%) |
(7%) |
147% |
130% |
Source: Refinitiv, Edison Investment Research. Note: Priced 7 June 2022.
Exhibit 6: Financial summary
€m |
2020 |
2021 |
2022e |
2023e |
2024e |
||
31-December |
ISA |
ISA |
ISA |
ISA |
ISA |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
1,129.8 |
1,538.8 |
2,170.9 |
2,213.6 |
2,261.8 |
NGR |
|
|
737.3 |
1,043.9 |
1,484.6 |
1,511.1 |
1,541.1 |
Cost of Sales |
(672.7) |
(883.7) |
(1,289.0) |
(1,311.7) |
(1,334.4) |
||
Gross Profit |
457.1 |
655.2 |
881.8 |
902.0 |
927.5 |
||
Other Income |
42.5 |
217.4 |
240.5 |
239.9 |
239.4 |
||
EBITDA |
|
|
263.9 |
551.2 |
721.7 |
727.4 |
740.7 |
Operating profit (before amort. and excepts.) |
|
147.2 |
408.6 |
582.5 |
588.2 |
601.5 |
|
Impairments |
(36.8) |
(4.7) |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
121.2 |
(0.5) |
41.8 |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
(2.2) |
(2.2) |
(2.2) |
(2.2) |
||
Reported operating profit |
231.6 |
401.3 |
622.1 |
586.0 |
599.3 |
||
Net Interest |
(33.5) |
(43.6) |
(28.5) |
(24.0) |
(19.0) |
||
Joint ventures & associates (post tax) |
18.3 |
(0.4) |
(0.2) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
132.0 |
364.6 |
553.8 |
564.2 |
582.5 |
Profit Before Tax (reported) |
|
|
216.4 |
357.3 |
593.5 |
562.0 |
580.3 |
Reported tax |
(17.3) |
(96.4) |
(121.8) |
(124.1) |
(128.2) |
||
Profit After Tax (norm) |
100.3 |
284.4 |
431.9 |
440.1 |
454.4 |
||
Profit After Tax (reported) |
199.1 |
260.9 |
471.6 |
437.9 |
452.2 |
||
Minority interests |
6.1 |
(1.4) |
(10.8) |
(12.1) |
(13.9) |
||
Net income (normalised) |
106.4 |
282.9 |
421.2 |
429.0 |
442.4 |
||
Net income (reported) |
205.2 |
259.4 |
460.9 |
425.8 |
438.3 |
||
Average Number of Shares Outstanding (m) |
334 |
344 |
353 |
353 |
353 |
||
EPS - normalised (c) |
|
|
31.83 |
82.28 |
119.36 |
121.58 |
125.39 |
EPS - normalised fully diluted (c) |
|
|
31.83 |
82.28 |
119.36 |
121.58 |
125.39 |
EPS - basic reported (€) |
|
|
0.61 |
0.75 |
1.31 |
1.21 |
1.24 |
Dividend (€) |
0.55 |
1.50 |
1.19 |
1.21 |
1.25 |
||
Revenue growth (%) |
(30.3) |
36.2 |
41.1 |
2.0 |
2.2 |
||
Gross Margin (%) |
40.5 |
42.6 |
40.6 |
40.7 |
41.0 |
||
EBITDA Margin (%) |
23.4 |
35.8 |
33.2 |
32.9 |
32.7 |
||
Normalised Operating Margin |
13.0 |
26.6 |
26.8 |
26.6 |
26.6 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
1,806.4 |
1,695.0 |
1,685.4 |
1,569.1 |
1,452.7 |
Intangible Assets |
1,578.9 |
1,476.0 |
1,491.3 |
1,391.6 |
1,292.0 |
||
Tangible Assets |
127.5 |
105.6 |
88.9 |
72.2 |
55.5 |
||
Investments & other |
100.0 |
113.4 |
105.2 |
105.2 |
105.2 |
||
Current Assets |
|
|
629.1 |
1,007.5 |
890.2 |
918.7 |
953.0 |
Stocks |
6.2 |
4.7 |
6.6 |
6.7 |
6.9 |
||
Debtors |
68.5 |
90.9 |
130.3 |
132.8 |
135.7 |
||
Cash & cash equivalents |
506.9 |
860.4 |
701.7 |
727.6 |
758.9 |
||
Other |
47.6 |
51.6 |
51.6 |
51.6 |
51.6 |
||
Current Liabilities |
|
|
(366.1) |
(571.5) |
(642.1) |
(646.8) |
(652.1) |
Creditors |
(149.4) |
(168.2) |
(238.8) |
(243.5) |
(248.8) |
||
Tax and social security |
(27.8) |
(60.7) |
(60.7) |
(60.7) |
(60.7) |
||
Short term borrowings |
(40.7) |
(62.5) |
(62.5) |
(62.5) |
(62.5) |
||
Other |
(148.2) |
(280.2) |
(280.2) |
(280.2) |
(280.2) |
||
Long Term Liabilities |
|
|
(1,286.7) |
(1,181.7) |
(1,028.8) |
(923.6) |
(816.1) |
Long term borrowings |
(1,057.9) |
(1,035.2) |
(835.2) |
(685.2) |
(535.2) |
||
Other long-term liabilities |
(228.8) |
(146.5) |
(193.6) |
(238.4) |
(280.9) |
||
Net Assets |
|
|
782.7 |
949.4 |
904.8 |
917.4 |
937.6 |
Minority interests |
(41.1) |
(38.5) |
(45.2) |
(53.2) |
(63.1) |
||
Shareholders' equity |
|
|
741.6 |
910.9 |
859.6 |
864.2 |
874.5 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
263.9 |
553.4 |
723.9 |
729.6 |
742.9 |
||
Working capital |
(34.8) |
21.1 |
29.3 |
2.0 |
2.3 |
||
Exceptional & other |
4.5 |
(4.5) |
44.9 |
42.6 |
40.3 |
||
Tax |
(12.1) |
(46.1) |
(121.8) |
(124.1) |
(128.2) |
||
Operating Cash Flow |
|
|
221.4 |
523.9 |
676.3 |
650.1 |
657.3 |
Net interest |
(32.5) |
(30.1) |
(28.5) |
(24.0) |
(19.0) |
||
Capex |
(18.9) |
(24.2) |
(25.0) |
(25.0) |
(25.0) |
||
Acquisitions/disposals |
(90.2) |
(19.0) |
(115.0) |
0.0 |
0.0 |
||
Equity financing |
(0.1) |
(0.2) |
0.0 |
0.0 |
0.0 |
||
Dividends |
(214.7) |
(91.0) |
(512.1) |
(421.2) |
(428.0) |
||
Net new borrowings |
(12.1) |
0.5 |
(200.0) |
(150.0) |
(150.0) |
||
Other |
20.0 |
(6.3) |
45.7 |
(4.1) |
(4.1) |
||
Net Cash Flow |
(126.9) |
353.5 |
(158.6) |
25.9 |
31.3 |
||
Opening cash |
|
|
633.8 |
506.9 |
860.4 |
701.7 |
727.6 |
Closing cash |
|
|
506.9 |
860.4 |
701.7 |
727.6 |
758.9 |
Closing net debt/(cash) |
|
|
591.7 |
237.3 |
195.9 |
20.1 |
(161.2) |
Source: OPAP, Edison Investment Research
|
|
Research: TMT
1Spatial has announced a two-year contract to build a data verification gateway with High Speed Two (HS2). The deal is worth £0.9m over two years, the majority of which is likely to be a recurring software licence/subscription, with options to extend for a further two years beyond that. The deal provides support for our current estimates, but also highlights the company’s increasingly interesting strategic position as the go-to supplier of location master data management solutions in both the UK and United States. The company’s potential to deliver strong, scalable growth continues to strengthen. We do not believe that the company’s current valuation (EV/sales 1.9x) reflects this potential.
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