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.


No brainer trade for 2017

Rember Grexit. At that time Euro came under severe selling pressure because people were worried that Greece exit from the EU could result in other departures. That is now all forgotten.

Surprisingly, BREXIT so far resulted only in week GBP, because the markets have been focusing on what will happen to Britain after its departure from the EU. The markets devote little attention to what will happen to the EU. The is wrong. If Grexit resulted in worries about the EU future, Brexit would likely result in significant larger panic. When this happens, the markets will sell EUR.

So if you believe, that Britain is on the way out, then you should get ready to sell EURUSD.

Fondul starts 7th buyback programme

Fondul Proprietatea announced competion of the 6the buyback in which the fund has repurchased 731.9 million shares. The share will be cancelled at the next shareholder meeting. Yesterday Fondul announced commencement of the 7th round of buyback in which it will repurchase 409.6 million of shares. The fund is authorised to purchase up to 25% of the daily volumes.

Fondul Proprietatea announced the completion of the 6the buyback in which the Fund has repurchased 731.9 million shares. The share will be cancelled at the next shareholder meeting. Yesterday Fondul announced the commencement of the 7th round of buyback in which it will repurchase 409.6 million of shares. At current market price, the buyback amounts to USD 80 million, which represents 4% of its market capitalisation. The fund is authorised to purchase up to 25% of the daily volumes.

Fondul shares currently trade at 31% discount to its NAV. If the shares were repurchased at the current prices, the NAV would increase by USD 35 mln, which is approximately 1.8% of the NAV.

Fondul is working on the listing of its largest asset Hidroelectrica on the local stock exchange which should be completed by the end of 2016. Hidroelectrica is Fondul largest holding at 27% of NAV. The illiquidity of this holding represents on of the main reasons for the NAV discount.

Net dividend yield of 6.25%

The Fund management proposed that the Fund for 2016 will distribute 0.05 RON per share. The payment will take the form of reduction of share nominal by that amount. In most jurisdictions, such capital return is tax-free. Fund shareholders will, therefore, be able to collect net ”dividend” yield of 6.25%.

Fondul NAV up 5%

From Wood and Co Research note released this morning:
Fondul Proprietatea has disclosed the NAV for end of June at RON 1.1445, up 5.4% from previous NAV disclosed on 9 June (just after the reduction in par value to RON 0.85 per share). The reason for the increase in the NAV is the revaluation of the stakes held in Bucharest Airports, Constanta Port and the one in Hidroelectrica after exiting insolvency. The total cumulated increase was RON 785.7m, 6.5% of the NAV, with the largest effect coming from Hidroelectrica revaluation.

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