Gamble of the week: monopoly gaming operator

By Paul Hill Aug 07, 2009

Paul Hill

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Unless you've visited Greece recently, you've probably never heard of OPAP. Yet it's the largest quoted gambling firm in Europe, worth about twice as much as William Hill and Ladbrokes put together.

It is Greece's monopoly operator of lottery, scratch-card and sports-betting games, with an exclusive licence until 2020. Despite the recession, OPAP is in rude financial health. Last year's revenues rose 9% year on year to €5.52bn and underlying EBITDA came in at €1.06bn. The group ended March with a war-chest of €950m in net funds.

That said, OPAP hasn't been immune to the global crisis. At €17, its shares are hovering near five-year lows, trading on a 2008 enterprise value (EV) / EBITDA multiple of 4.4, a 25% discount to its peers.

Why the low rating? Apart from concern that shrinking disposable incomes will hit punters' wallets, on 25 June Greece introduced a new 10% tax on net winnings. Unless offset by cost savings and/or new game launches, this legislative change could knock up to €180m a year off OPAP's profits.

OPAP S.A. (Athens: OPAP)

But this looks like a worst-case scenario. I expect around 50% of the hit to be recovered, generating a sustainable EBITDA of €1bn. Other concerns relate to possible fall-out from a ban from 1 July on smoking in public places, and the longevity of the firm's 13% dividend yield. But with a solid balance sheet and strong cash flows, the payout looks secure.

So how much is the group worth? Using a six-times EBITDA multiple and adjusting for the cash hoard, I'd value it at around €22 a share. There's an outside chance the European Court of Justice could rule that OPAP's monopoly is "anti-competitive", yet with the government owning around 34% of the group, I suspect nothing will threaten its dominance.

So with future upside from overseas acquisitions in the Mediterranean, Turkey and the Balkans, and online gaming services yet to kick in, OPAP looks a good bet for the battle-hardened investor. Interims are due out on 25 August, and the stock can be purchased via most mainstream brokers.

Recommendation: Speculative buy at €17 (market capitalisation €5.4bn

• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments

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