OPAP — Strong retail recovery in Q122

OPAP (ASE: OPAP)

Currency in EUR

Last close As at 25/01/2023

EUR13.22

−0.13 (−0.97%)

Market capitalisation

EUR4,851m

Research: Consumer

OPAP — Strong retail recovery in Q122

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.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Consumer

OPAP

Strong retail recovery in Q122

Q122 results

Travel & leisure

8 June 2022

Price

€14.06

Market cap

€4,935m

Net debt (€m) at 31 March 2022
post IFRS 16 (net debt pre IFRS 16 €42.4m)

91.5

Shares in issue

351.0m

Free float

51.9%

Code

OPAP

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

11.9

4.4

Rel (local)

0.9

3.1

5.6

52-week high/low

€14.57

€11.10

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. Allwyn has a 48.1% stake and significant board representation.

Next events

H122 results

7 September 2022

Q322 results

22 November 2022

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’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*
(€m)

EBITDA**
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

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
end

Share price
(local ccy)

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

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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.

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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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Copyright: Copyright 2022 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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1Spatial — On board with HS2

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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