OPAP – Greek play

Wood and co research on OPAP published today:

*** OPAP: VLTs not yet priced in (stays Buy) ***

To download the report, please click on the following link: Greece_Consumer Discretionary_OPAP_Update_25Jan2017.pdf, (650 KB)

We maintain our BUY rating on OPAP, with an increased 12M price target (PT) of EUR 10.00/share (from EUR 8.50 previously), due to full inclusion of the VLT project. Accounting for the VLT contribution on the one hand, and related cannibalisation of legacy games on the other, we are increasing our EBITDA estimates by 7-54% in 2017-19E. We expect a 2016-19E EBITDA CAGR of 13% and DPS of 0.51-0.68, yielding a decent 6-8% in the respective period. In light of our new figures, we still find the company’s 2018E EBITDA of 6.6x, 30% below peers’ median, attractive. Finally, since the announcement of positive changes in VLT regulations, OPAP’s share price has discounted only c.25% of the project value.

VLTs back in the game. In November, just before the potential expiry of OPAP’s licence (historical cost of EUR 560m), the Hellenic Gambling Committee released amendments to the market regulations. As a result, OPAP has now announced that the VLT project will finally be launched in 2017E. Accordingly, OPAP has significantly reduced its claim against the government under the litigation process within the UK arbitrage court. On a negative note, however, we underline that, as a result of the new regulations, OPAP’s catchment area is unlikely to grow by as much as we had initially expected, due to some machines being placed in the existing agents’ shops.

We expect a full launch of VLTs by 2H18E… According to the updated licence agreement, OPAP should now be able to fully deploy 16.5k own-use machines by 1 May 2018. For the 18.5k sub-contracted machines, we expect the process to be delayed by around half a year, as the company has not yet prepared the tender for sub-concessionaires. In our model, we have assumed full deployment of VLTs by the end of 2018E, with effective 2017/18E utilisation of 25%/77% for owned machines, and 3%/63% for sub-contracted ones.

…triggering our EBITDA forecast upgrades of 7-54% in 2017-19E. Taking into account the VLTs’ contribution, and their cannibalisation effect, we have increased our GGR forecasts by 7% to EUR 1,436m in 2017E, followed by a massive 77% hike to EUR 1,882m in 2018E, and another 117% increase to EUR 2,183m in 2019E. Given the structurally lower profitability of the VLT business, the increase in our EBITDA forecasts is more limited, amounting to 7% to EUR 308m in 2017E, 35% to EUR 388m in 2018E and 54% to EUR 438m in 2019E.

Valuation gap still not closed. We have increased our 12M PT to EUR 10.0 from EUR 8.50. Since the announcement of the VLT relaunch, OPAP’s market cap has only increased by EUR 250m, equivalent to less than 50% of the exclusive licence value and 25% of the claim against the Greek state. On our 2018E forecasts (which still do not include the full VLT contribution), OPAP is trading at an EV/EBITDA of 6.6x and P/E of 13.9x, 30% and 7% below its peers’ median.

Risks. The major downside risks to our positive stance are: a deeper slowdown in the Greek economy; regulatory risks, especially in VLT case; losing exclusivity to online gambling; and further GGR tax hikes.


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