OPAP — Strategy delivering incremental growth

OPAP is a listed gaming operator with exclusive licences in the majority of its activities; the earliest land-based licence is due to expire in 2026 and the latest in 2036. The business model is predicated on the continuing cash flow from exclusively operated businesses, supplemented by product enhancements and the move online. It has a leading presence online thanks mainly to the acquisition of Stoiximan at the end of FY20, which also operates in Greece and Cyprus. The Greek and Cypriot populations have among the highest propensities to game in Europe.

The business model is very cash generative given its franchises require 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 year-on-year growth in margins before COVID-19, despite the challenging macroeconomic backdrop, while continuing to invest in new products.

The aim of the CEO’s strategy, Fast Forward, launched in 2021, 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. In 2022, the company made good progress in revitalising core products in both the online and offline worlds, while introducing new games, leading to greater customer engagement and incremental revenues.

OPAP’s strong results through H123, with year-on-year revenue and EBITDA growth of 14% and 12%, respectively, encourage us to increase our estimates towards the middle of management’s revenue and EBITDA guidance for the year. Our forecasts typically assume low-single-digit revenue growth for the offline activities and high-single-digit growth for the online activities. We estimate modest margin compression from changes in mix as online is less profitable than land-based activities.

Relative to an imperfect quoted peer group, OPAP trades at a discount using P/E multiples for FY23 and FY24. OPAP’s higher profitability and attractive divided policy of paying out the bulk of net income with a commitment to pay a minimum dividend of €1 per share means our estimated prospective dividend yield for FY23 of 10.7% compares favourably to those of its peers, with a median dividend yield of 1.9%, which includes some companies that do not pay dividends. Our DCF-based valuation of €17.9/share, using a weighted average cost of capital (WACC) of 9% and terminal growth rate of 2%, suggests c 18% upside from the current share price.

OPAP was founded in 1958 as the Greek national lottery and is the exclusive operator of all numerical lotteries, sports betting, horse racing and video lottery terminals (VLTs). Through its 83.5% holding in Hellenic Lotteries, OPAP also has an exclusive licence to operate passive lotteries and instant (scratch) games. Its core lottery business and VLTs (with €2 slot limits) are not associated with problem gambling, and the company is therefore less likely to face meaningful fines or regulatory scrutiny than gaming peers in other countries.

The company operates a network of franchised shops and gaming halls (c 3,800 in Greece, and c 200 in Cyprus at FY22), which leads to limited capital expenditure, and OPAP is expanding its online offering in lottery, sports betting and casino games. In FY22, 93% of gross gaming revenue (GGR) was generated in Greece and 7% in Cyprus, and c 23% was online, a more normalised level given the reopening of retail following closures through FY20 and FY21 due to COVID-19.

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. Allwyn Entertainment (formerly known as Sazka Group), the largest pan-European lottery operator, holds a 50.2% 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 in terms of tax payments and charitable contributions, operating under the World Lotteries Association (WLA) and responsible gaming standards (holder of Level 4, the highest certificate by WLA on responsible gaming standard).

OPAP’s games portfolio is split between fixed-odds betting games and mutual betting games (where the total amount is distributed to winners). The traditional land-based ‘legacy’ games, Lotteries, Betting and Instant and Passives, are mature businesses, and prior to the Fast Forward strategy, growth was expected to be driven primarily by its online activities and VLTs. Management believes the Fast Forward strategy (discussed below) should arrest the slow annual declines of these businesses. Following the additional investment in Stoiximan in FY20, its main Greek and Cypriot online activities, Stoiximan, have been fully consolidated from December 2020, with equity accounting prior to that date. Below we show how GGR, that is revenues for the individual businesses and the group, has developed, including the negative effects of the outbreak of COVID-19, which led to closures of land-based activities and other operating restrictions such as reduced dwell times, from the early part of FY20. We highlight also how we anticipate GGR to progress through FY23–25 as growth is boosted by management’s Fast Forward strategy. OPAP’s GGR growth has historically been linked with changes in Greek GDP and consumer spending; the effects of COVID-19-related location closures and operating restrictions are evident from FY20.

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 exclusive (Lotteries and Betting) licence was extended for 10 years in 2020 until October 2030, the scratch tickets and passive licence (Instant & Passives) expires in April 2026, and the horse racing licence expires in 2035. The exclusive licence to operate 25,000 VLTs in Greece expires in 2035. The new online gaming licences awarded in FY21 are for seven years (until August 2027) at a cost of €2m or €3m per annum. 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.

OPAP is among the larger social contributors (tax contributions, employment and charitable donations) in Greece operating under the WLA and responsible gaming standards, while it transforms its business excellence into a social contribution through an integrated CSR strategy.

Numerical lottery games comprise the largest portion of GGR and consist of games that are currently active, and lottery games (Bingo and Super 4) that management has no plans to launch. The fixed odds games are Kino, Super 3 and Extra 5, and Tzoker (Joker), Lotto and Proto are mutual games. The two most significant games in terms of revenue contribution are Kino and Tzoker. The company’s other mutual game, PowerSpin, is included in the Betting category. In H124 OPAP will launch EuroJackpot.

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.

From a traditional land-based focus, OPAP’s online presence began in March 2019 with the launch of Tzoker online. Online revenue has grown steadily, representing just over 2% (€17m) of the total Lotteries GGR (€709m) in FY22 and 3% in H123. The Tzoker website was relaunched during 2022, which made it easier to play the game and resulted in a 7% uplift in GGR. This was followed by the launch of OPAP’s iLottery offering, opaponline.gr, which is an umbrella brand that hosts all of its lottery products, including those that have not previously been available online. In addition to offering OPAP’s own games with better personalisation features such as promotions, third-party free-to-play games will be included on the platform. Management hopes the platform will increase player engagement and dwell times. The results for H123, in which retail revenue has grown by 9% yoy and online revenue grew by 25%, including 50% in Q223, suggest the move online is accretive to revenue, through increased activity/frequency of play, and is not cannibalising OPAP’s land-based revenue.

OPAP’s online betting and casino revenue has grown quickly following the introduction and subsequent growth of many of its own games as well as the gradual acquisition of a majority (c 85%) stake in Stoiximan (the Greek and Cypriot operations).

With the announcement of the FY20 results, OPAP enhanced its divisional disclosure to report separately the financials for Online Betting (ie sports betting) and Other Online Games (casino games). The two divisions include the results of OPAP’s own online activities as well as the consolidated (ie Greek and Cypriot) operations of Stoiximan. From the perspectives of brand and consumer proposition, Stoiximan operates independently of OPAP’s own online activities. On a combined basis, Online Betting (12% of FY22 GGR) and Other Online Games (10%) represented OPAP’s second most important sources of revenue in FY22.

After a prolonged period of uncertainty, both OPAP and Stoiximan were awarded online gaming licences in FY21 as the Greek online gaming market became fully regulated. Both OPAP and Stoiximan were awarded Type 1 (Online Betting) and Type 2 (Other Online Games) licences in May 2021, which became active in August 2021 with a fixed licence length of seven years. OPAP and Stoiximan were two of the original 15 companies to be awarded online licences, including three new entrants, that has subsequently increased to 18 current licences. Relative to the other revenue streams, online benefits from being liable to pay agents’ commissions, but, conversely, competition is higher leading to greater required advertising investment.

In April 2019, OPAP launched its online casino games through the pamestoixima.gr platform. In March 2023, OPAP rejuvenated its online sports book offering, pamestoixima.gr (see Betting below), with key features, according to management, of faster navigation and user experience, personalised content and offers, richer content and social features that are hoped will prove to be more appealing to younger customers. Following a relatively weak FY22, with a year-on-year revenue decline as spend moved to retail as the economy re-opened after the pandemic, Online Betting has made a good start to the year, with c 15% revenue growth in Q123 followed by c 12% growth in Q223, to give c 14% growth for H123. In absolute terms, H123 revenue of €124m was in line with H121’s €124m.

OPAP’s online casino offer was enhanced in FY22 with the introduction of live casino tables and the launch of new casino games that appeal more to female and younger customers. These have translated into strong growth, with H123 revenue growth of 35%, against an easy comparative with a decline of 13% in H122, and with H222 growth of 30%.

OPAP’s online GGR and active users have demonstrated strong growth with some short-term variability in recent years due to COVID-related closures and restrictions and subsequent re-openings of land-based alternatives; OPAP’s Online growth was boosted by the closure of physical betting locations and vice versa.

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

OPAP has developed its offer over a number of years. Pame Stoixima Virtual Sports was launched in April 2017 to target a younger demographic and has 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. More recently, in September 2022, management made its sports retail activities more competitive by introducing its best-ever odds, which has resulted in an improved performance.

From FY20, OPAP’s online sports betting activities have been reported in a new division, Online Betting (see above). Prior to this change in disclosure, total Betting GGR reduced from €456m in FY14 to €396m in FY19 due to the general industry move from land-based towards online gambling at that time. In addition to the change in disclosure, in Exhibit 1 we can see the disruption to Betting’s GGR caused by COVID-related closures and operating restrictions from Q120,but note the GGR figures for the periods in 2018 and 2019 include the online activities that have been subsequently reported in Online Betting (see above). Betting’s GGR has recovered well from the negative effects of the pandemic, reporting €96m of GGR in Q223 versus €90m in Q219 (ie pre-COVID), which included some online revenue. Growth accelerated to c 14% y-o-y in Q223, from c 8% in Q123, due to a strong performance from PowerSpin and Virtual Sports in the retail locations. As we saw with Lotteries above, management’s Fast Forward strategy has produced growth in the online world but also turned around the negative trends in its retail activities.

A VLT is a standalone gaming 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. Following the initial cabinet rollout, management has begun a programme of upgrading the cabinet, and the games offer has been optimised.

VLTs have a €2 per spin limit, which is in line with the £2 fixed odds betting terminal stake limits in the UK. Importantly, unlike the traditional over-the-counter (OTC) games, players are required to register. Apart from the expansion of the number of games available per machine and a general reliance on the macro environment, a key driver for VLT growth will be OPAP’s ability to shift consumers away from using competing illegal machines towards its own venues. OPAP is hopeful that its VLT jackpots and further gaming innovation will provide a suitable incentive for players to shift allegiance. It is difficult to quantify the size of the illegal market, but management believes it has significantly decreased post the launch of OPAP’s VLTs in 2017.

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. Exhibit 5 shows the quarterly progression of GGR (€m) and GGR/VLT/day (€) and how they have been affected by COVID-related closures and operating restrictions. There has been a good recovery in GGR to €93m and €84m in Q422 and Q123, respectively, greater than the comparative pre-COVID levels of €85m (Q419) and €67m (Q120). Since launch, GGR/VLT/day has modestly declined as, naturally, the highest spending markets were targeted initially and the density of machines was lower. The improvement in GGR/VLT/day to €43 in Q422, equivalent to that achieved in Q419, is testament to the success that the product innovation is having and supportive for further upside as upgrades are made across the estate and the estate matures.

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 expected limited potential to grow, before Fast Forward (see later), given the increasing number and sophistication of competing products. GGR declined modestly in recent years, from €159m in FY16 to €147m in FY19, before being negatively affected by the COVID-related closures and operating restrictions. There has been a modest recovery in GGR following the pandemic, but at €60m in H123, it remains about 12% below comparative pre-pandemic levels (H119: €69m).

In FY22, product innovation under Fast Forward included revamping Laiko, including customers being able to partially customise their tickets and new pricing structures, for example changed odds, stakes and frequency of win that give players more chances to win, which has increased both the customer base and revenue. The scratch proposition has also changed with different pricing structures and betting options.

The licence stipulates that GGR tax in any year is a minimum of €50m or 30% of GGR. In FY19, FY20, FY21 and FY22, GGR was lower than €150m (due to COVID in FY20 and FY21), therefore the minimum €50m was expensed instead of the variable 30%. Hellenic Lotteries has filed for arbitration that the minimum levy for FY20 and FY21 should not be payable due to the government’s COVID-19-related operating restrictions, and the liability should be the variable 30% of GGR. The matter remains pending before the tribunal.

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 outlined six key areas or pillars, highlighted below, to be used as a general framework for continuing OPAP’s journey to provide 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.

Broadly, the aspiration is to develop more social interactions with existing and new customers. This will be achieved by gaining a better understanding of the customers and their activity, and then building better experiences in retail and online by further developing new and existing gaming content and other entertainment. OPAP will leverage the insight on customer activity with better customer relationship management (CRM). 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.

At the outset of the Fast Forward strategy, management stated, in aggregate, OPAP had an older customer base (70% of customers are aged 35+) and greater representation among males (70% of customers are male) than its desired (ie more balanced) customer mix. In addition, there was relatively low brand loyalty and few of its retail games were available online. OPAP has ongoing initiatives in technology (including replacement and introduction of new platforms) and people, and below we focus on progress made in three of the pillars of the strategy: customer, online and retail, which should also positively influence the fourth pillar, brand.

The rate of innovation with the product offer in FY22 and so far in H123 is summarised below; most of the changes have been highlighted in the relevant sections above.

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.

Exhibits 9 and 10 show how GGR has progressed for the main participants in the market, four land-based activities (OPAP, casinos, state lotteries and horse racing) and online; state lotteries refers to the Instant & Passives games, in which OPAP has a majority stake.

The HGC estimates the total Greek gaming market’s GGR increased to €2.35bn in 2022, surpassing the pre-COVID 2019 peak of €2.23bn. The sector recorded a year-on-year growth rate in GGR of 15% in 2021, followed by stronger growth of 26% in FY22. OPAP’s aggregate land-based activities have grown in every year since 2016, apart from the COVID-related declines of FY20, as the new revenues from VLTs have more than offset the declines in its land-based betting and lottery activities.

Online’s share of the market, including OPAP’s online activities, has grown rapidly such that it represented c 32% of the total market in 2022. The declines in 2021 and 2022 were due to the re-opening and removal of operating restrictions on land-based activities as the effects of the pandemic eased. OPAP’s online revenue, c 24% of its overall revenue, is lower than the overall market, reflecting its legacy games, which management is aiming to move online gradually.

OPAP estimates that in 2022 GGR per adult in Greece was €287 and in Cyprus it was €264, both above the European average of €249. Given the longstanding cultural tendency to gamble in Greece and Cyprus, we note that Greece’s GGR as a percentage of GDP was 1.22%, the highest of the 27 EU countries, and Cyprus’s was 1.11%, the third highest, versus the average for all 27 countries of 0.63%.

As already highlighted, the Greek online gaming market became fully regulated in 2021. All 15 licensees now operate under the same rules from a legal and regulatory perspective, which was not the case before full regulation. The seven-year licences 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 continues and licensees will be required to have a registered office in Greece or another EU country.

Within the legal sports betting market, management estimates Stoiximan is the market leader with c 50% market share, followed by Novibet (a domestic competitor), Bwin (owned by Entain) and Bet365.

The casino licences were initially awarded with limits on maximum spend per bet (ie click) of €2 and a time restriction between each bet of three seconds. In March 2022, the HGC voted in favour of increasing the maximum bet size to €20 and to reduce the time between bets to two seconds, and it became effective in May 2022.

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

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:

With expectations for no further disruption to its land-based activities from COVID-19 and further growth by its online activities, management guided to FY23 revenue of €2,060–2,140m and EBITDA of €740–760m at the start of the year. The guidance was subsequently reiterated with the publication of the Q123 and H123 results. Management’s FY23 guidance is equivalent to year-on-year revenue growth of 6–10% and EBITDA growth of 0.5–3.3%, implying some margin compression, from FY22’s revenue of €1,939m and EBITDA of €736m (OPAP definition). We remind readers that OPAP’s definition of EBITDA differs slightly to our own: management includes associate income (historically this has been a material item but is no longer an issue following the disposal of the Betano operations) and one-off items.

FY23 has started well with H123 year-on-year revenue growth of 14% to €1,026m and EBITDA growth of c 12% to €374m. The reiterated guidance range implies year-on-year revenue growth of c -1% to 7%, and EBITDA declines of c 4–9% in the second half of the year. Historically, there has been a slight skew in OPAP’s revenue and profit generation to H2 versus H1 due to the boost from, for example, New Year lotteries and the economic boost from summer tourism. Some revenue streams, for example Betting, are also influenced by other factors, such as the phasing of major events and the seasons of individual sports. Management’s FY23 revenue guidance is consistent with this historical skewing: H123 revenue of €1,026m compares with the implied H223 revenue, using management’s guidance, of €1,034–1,114m. With respect to EBITDA, the skew is less apparent: compared to the H123 profit of €374m, the bottom end of the FY23 range implies lower absolute H223 profit of €366m, but the top end implies higher absolute profit of c €386m.

Our new estimates for FY23 (towards the middle of management’s guidance) and FY24 are shown below, and we introduce estimates for FY25.

Revenue and EBITDA growth moderated in Q223 to 13% and 7%, respectively, following higher growth in Q123, which was helped by the easier comparatives provided by COVID-19 disruption and recovery. The recovery was broad-based with land-based revenue increasing to €379m (€347m in Q222) and online increasing to €119m (€95m in Q222), attributed to the improved casino offering, taking online to c 24% of overall revenue.

The boost from new products and re-invigoration of older products showed in the Q223 revenue growth of Lotteries (+8% y-o-y including a strong performance by Kino); Betting (+14% yoy including good performances from PowerSpin and Virtuals as online demand increased); and Instant & Passives (+12% on higher-than-average Laiko jackpot rollovers and new Scratch offerings). VLTs revenue declined sequentially, ie quarter-on-quarter, in Q223. Our FY24 and FY25 forecasts typically assume low growth for OPAP’s retail activities and double-digit growth for its online activities.

Within OPAP’s cost structure, the three major variable components are the GGR tax (c 31% of H123 GGR) and agents’ commissions and other direct taxes (c 40% of net gaming revenue (NGR)). Relative to revenue, both have reduced over the long term, with some help from changes in revenue mix as online is not liable to pay agents’ commissions.

Coinciding with the full privatisation of the company in 2013, a 30% GGR tax was introduced by the Greek state. In essence, this tax replaced dividend payments to the government. Three years later the GGR tax was further increased to 35% for just the Lotteries and 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 and online is taxed at 35%.

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. 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.

The gross margin from gaming has been stable through H123 versus H122.

With respective to OPAP’s expenses below gross margin, the lower Q223 EBITDA margin of 35.7% (Q222: 37.7%) included higher (relative to revenue) marketing expenses to support new product launches, stable payroll expenses while growing headcount and supporting staff with the cost-of-living crisis, offset by lower other operating expenses achieved through ongoing efficiencies. Lower ‘other income’ (the accounting entries that recognise the value of the GGR contribution prepayment from the 10-year licence extension for Lotteries and Betting) also provided a lower relative contribution to EBITDA in H123 than H122, due to the changes in revenue mix, which is likely to continue.

Shareholders have enjoyed very healthy cash returns in the form of dividends and capital distributions as free cash flow has grown on an absolute basis and relative to revenue, and the balance sheet has de-geared. At the end of H123, the company had net debt (using the company’s definition, which includes investments) of c €91m, which had increased from a net cash position at the end of Q123. The company enjoys low fixed asset intensity, with cash outflows of c €23m in FY22 from operating cash generation of €660m.

At the time of the H121 results announcement, management updated its dividend policy, committing to dividend distributions that exceed net profit with a minimum dividend of €1 per share. The payout in excess of net profit, to reach the minimum €1 dividend per share or to pay special dividends, could be funded from the company’s (not group) share premium account, which had consistently increased due to OPAP’s ‘attractive’ scrip dividend, and retained earnings.

With the H123 results, management announced a change in the way returns will be made to shareholders. The five-year (2019–23) scrip dividend programme has ended. The company remains committed to a minimum dividend distribution of €1 per share but now the bulk of net profits will be distributed as a cash dividend, with a slight change in the annual phasing of dividends to a more balanced split between the interim and final dividend so that shareholders receive cash distributions earlier in the year than historically.

In addition, recognising the company’s strong financial position and cash generation, management has obtained authorisation to return an initial €150m of cash to shareholders via a share buyback before the end of 2024, with the amounts and timing dependent on market conditions. We believe the shares will be treated initially as treasury shares but will ultimately be cancelled. In our model, we simplistically assume share buybacks of €30m in H223 and €120m in FY24.

During the last 12 months OPAP’s share price has increased by c 9%, below the average 16% return of its peers, albeit the range of performances by the peers is quite wide over that period.

Our primary valuation method for OPAP is a DCF-based valuation of €17.9 per share (€15.9/share previously). Beyond our explicit forecast period we assume a gradual fade down in annual revenue growth to c 2% in our terminal year, FY32. In addition, we assume an EBITDA margin of 25% from FY30 to reflect the end of the concessions in October 2030, which boosts the EBITDA margin to c 35% during its term. We assume that OPAP pays €1bn in 2029 to renew the Lotteries and Betting licence beyond 2030. We use a WACC of 9.0% (risk free rate 4.2%, equity risk premium of 6.5%, and company specific beta of 0.9 (source: Refinitiv)). The sensitivity of the valuation to changes in WACC and terminal growth rate assumptions is shown below.

During the last 12 months OPAP’s share price has increased by c 9%, above the simple average 6% return of its peers, albeit the range of performances by the peers is quite wide over that period. Although OPAP is a listed gaming business, its business model is different from the other listed European gaming companies (they do not have exclusive licences, mostly do not participate in lotteries and usually have a higher percentage of online revenue). The different geographic and online/retail exposures means that each has been affected by the COVID recovery in different ways and at different stages.

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 potential regulation changes. As OPAP begins to grow its online presence, the comparison with other peers will likely become more relevant.

OPAP trades at a discount to the peer group average P/E multiple in FY23e and FY24e. Consensus is expecting higher median revenue growth for the peers than we forecast for OPAP, however OPAP is significantly more profitable (we forecast an EBIT margin of 29.6% in CY23) than its peers (median 11.8%). OPAP’s dividend policy with a high payout ratio means it offers a more attractive dividend yield of 10.7% in CY23 than the peer median of 1.9%.