OPAP seen as good bet for growth, H1 results in line with expectations

Gaming operator OPAP posted first-half profits roughly in line with market expectations yesterday, and analysts said its offerings such as sports betting game Stoichima still had room to grow. Net profit fell 26 percent, but was weighed down by an extraordinary charge from the first quarter to cover potential legal damages. OPAP’s first-half core profit climbed 19 percent. «OPAP shares trade at seven times enterprise value to EBITDA on our estimates for 2004, close to the European sector’s average, offering thus limited upside,» said UBS analyst Sterios Souyoutzoglou. «However, a better dividend yield and growth prospects in comparison with the sector allow us to remain positive.» OPAP’s main competitors include Britain’s William Hill and Rank Group, and Italy’s Lottomatica. OPAP, in which the State holds a 51 percent stake after the recent sale of 24.45 percent, has seen its shares rise 7.3 percent in the year to date against a near-40 percent increase in 2002. First-half consolidated net profit fell 25.9 percent to 91.1 million euros. Analysts polled by Reuters had forecast 92.7 million euros on average. The net figure was stung by the extraordinary charge of 81 million euros in the first quarter to cover potential damage claims by gaming systems operator Intralot. OPAP has appealed against an arbitration court’s decision ordering it to pay 37.4 million euros to Intralot for each year it delays the launch of new horse and greyhound racing games. A hearing is scheduled for October 7. Sturdy core profit, sales Reporting under International Accounting Standards (IAS), OPAP said group earnings before interest, tax, depreciation and amortization (EBITDA), excluding provisions and unfunded pension liabilities, climbed 18.9 percent to 239.9 million euros. Half-year revenues rose 25.6 percent to 1.176 billion euros due chiefly to increased sales of sports betting game Stoichima and numerical lottery games Super 3 and Extra 5. «Half-year sales growth compared favorably with our full-year target of 16 percent increase year-on-year,» said UBS’s Souyoutzoglou. OPAP, with a current market value of 3.5 billion euros, had a 42 percent share of Greece’s 4.6-billion-euro gaming and casino market last year. It is the country’s sole fixed-odds betting operator and a solid money earner for the State. Revenues from Stoichima amounted to 870.4 million euros in the first half, accounting for 74 percent of total sales. But sales growth slowed to 9.9 percent in the second quarter from 33 percent in the previous quarter. Super 3 and Extra 5 brought in revenues of 110 million euros. An aggressive marketing campaign launching the two games at end-November 2002, however, more than doubled total distribution costs to 28.3 million euros. Later yesterday, OPAP said it is negotiating to buy 90 percent of Cypriot fixed-odds betting company Glory Leisure Holdings for about 16 million euros as part of its overseas expansion. Management told analysts during a conference call that it wants to acquire 90 percent of the Cypriot company instead of the 55 percent initially announced at end-June. The deal is subject to approval by the Cypriot competition commission, with a ruling expected by October. Glory Leisure Holdings, with a network of 91 agents, posted a net profit of 1.2 million euros in 2002. OPAP management said it has decided not to acquire another Cypriot fixed-odds betting company, Royal Highgate, but did not give reasons.