CFA Institute Research Challenge Hosted by CFA Society Greece Athens University of Economics and Business CFA Research Challenge 2017
Athens University of Economics and Business Consumer Discretionary Sector, Consumer Services Industry Accounting and Finance Department Athens Stock Exchange This report is published for educational purposes only by students competing in the CFA Research Challenge OPAP S.A. Reference Date: 31/1/2017 Ticker: OPAP:GA (Bloomberg)
Executive Summary Recommendation: BUY Valuation Results Target Price: €10.73 We issue a BUY recommendation on OPAP S.A. with a target price of €10.73, Current Price: €8.2 implying a 30.8% upside potential from the current price. To calculate the above target price we have used the Discounted Free Cash Flows to the Firm model and Upside Potential: 30.8% have also performed Residual Income Valuation resulting to €10.30 target price, to further substantiate our recommendation. Peer Group Analysis provided that OPAP 40% is 25% discounted compared to peers implying a target price of €10.98. 30% Robust Business Model OPAP is the leading company in the Greek Gaming Market with a 72.7% market 20% share and controls the widest commercial network in Greece with 10,311 POS. The 10% game diversity is outstanding as OPAP holds 4 exclusive licenses to operate 14
0% different games. The regulatory framework prevents potential rivals from entering the gaming market and provides OPAP with a significant comparative advantage -10% under a fully protected environment.
-20% VLTs to maximize growth potential -30% The Video Lottery Terminals (VLTs) project is expected to dramatically boost the robustness of the company with a 10% estimated 5Y GGR CAGR. The exclusive ATHEX Composite Index OPAP license provided by the Hellenic Gaming Commission, allows OPAP to launch 35,000 VLTs throughout the country by 2019. Market Data Impressive efficiency drives profitability Market Cap. €2,647M The expected high VLT driven revenue growth combined with asset depreciation and minimum CAPEX requirement rapidly increases the efficiency, as measured by Shares Outstand. 318,112,195 asset turnover, from 0.8x in (FY2016) to 1.7x in (FY2021), causing expected ROE 52wk price range €5.4 – €8.9 to surge from 13.80% in (FY2016) to 31% in (FY2021). Avg daily volume 564,131 Strong FCF generation which is paid out as dividends OPAP’s elevated amortization (over €100 million), is expected to push FCF Yield Free Float 62% from 5.75% (FY2016) to 15.1% (FY2021), exceeding reported net profit. Taking into account the over €1 billion in retained earnings, OPAP’s Dividend Yield is estimated to grow from 8.8% (FY2016) to 11.3% (FY2017), aligned with Important Terms management’s intention to distribute the generated FCFs as dividends. GGR: Gross Gaming Revenue Mild-impact Investment Risks The most important risk for OPAP is the highly unstable macroeconomic NGR: Net Gaming Revenue environment. In case of a stagnation in the Greek economy (assumption of a VLT: Video Lottery Terminal constant Caa3 Moody’s sovereign credit rating), the valuation derives a target price of €8.52. The results of the Monte Carlo Simulation performed on our FCFF model, strongly supported our BUY recommendation with a 87% probability and a minimum target price of €8.54 in a 90% confidence interval.
2015A 2016* 2017E 2018E 2019E 2020E 2021E GGR (€ thousand) 1.399.671 1.391.490 1.501.910 1.839.766 2.117.878 2.248.611 2.235.980 GGR Growth Rate (%) 1,6% -0,6% 7,9% 22,5% 15,1% 6,2% -0,6% EBITDA (€ thousand) 377.102 278.549 327.200 407.764 471.825 502.806 499.635 EBITDA Margin (%) 26,9% 20,0% 21,8% 22,2% 22,3% 22,4% 22,3% Net Income (€ thousand) 209.900 144.797 171.396 209.707 241.964 272.864 244.995 EPS Growth (%) 5.4% -31.0% 21.8% 21.7% 15.0% 12.5% -10.0% P/E 12,5 18,0 15,2 12,5 10,8 9,6 10,7 P/B 2,2 2,5 2,5 2,7 2,8 2,9 3,2 Debt to Equity (%) 12,2% 34,7% 35,4% 37,1% 29,5% 22,5% 24,7% Dividend Yield (%) 4,9% 15,7% 9,8% 11,2% 12,0% 12,5% 11,3% Source: Team Estimates *Pro-forma
Athens University of Economics and Business 1 Accounting & Finance Department CFA Research Challenge 2017
1. Investment Summary We issue a BUY recommendation, with a target price of €10.73 implying a 30.8% upside potential from the current price of OPAP. Valuation Techniques Figure 1: GGR (€ billion) Our target price derives exclusively from a 10Y Discounted Free Cash Flows to the Firm Model. We have opted for an extended 10Y period to integrate the impact of a potential 33% market deregulation due to the expiring VLT license in 2027. Additionally, to further 2.25 2.12 2.24 substantiate the results, we have performed a 10Y Residual Income valuation, returning a 1.84 21% 1.40 1.39 1.50 target price of €10.30 combined with 25.6% upside potential. Gross Gaming Revenue (GGR) to reach 10% CAGR Our recommendation is highly based on the huge potential of the new investment project of OPAP regarding Video Lottery Machines (VLTs). It is anticipated to create a 10% 5Y GGR CAGR despite the gradually declining gross margin from 33% (FY2015) to 21% (FY2021). The sharp increase reflects the potential of OPAP to constrain the illegal slot GGR Gross Margin machine market which is estimated around €1 billion (in GGR). VLT revenues are Source: Company Data, Team Estimates expected to contribute 39% to the aggregate GGR by 2021 and raise EPS with a 11.5% 5Y Figure 2: Strong Cash Flows CAGR. (€ million) Robust Profitability and Outstanding Cash Flow Generation 500 OPAP operates under a straight forward business model with strong receivable and liability 400 turnover ratios. Taking into account the elevated - over €100 million – annual amortization of the exclusive licenses, OPAP’s FCF exceeds reported net profit, with 2017 being the 300 only exception due to the elevated €90 million CapEx. With robust profitability levels and 200 a rapidly growing asset turnover driven by the increased efficiency of the VLTs’ 100 deployment, OPAP’s ROE is expected to surge from 13.78% (FY2016) to an impressive 31.00% (FY2021). The robust, cash-intensive business model is the foundation of OPAP’s 0 dividend policy. Management is committed to distributing the entire free cash flow to the shareholders and we have considered a generous dividend policy with payouts exceeding 100% for the next 5 years. Net Profit Dividend FCFF Source: Team Estimates VLTs to generate added value OPAP’s new investment project regarding VLTs is expected to boost residual income from €23.1 million (FY2017) to €154 million (FY2021) taking into account that there will be no Figure 3: Added value significant increase in Invested Capital. OPAP has followed the least capital intensive 25% solution for this project in order to minimize additional capital investments and upfront 20% payments to vendors. Consequently, ROIC will reach an impressive 23.5% (FY2021) 15% exceeding by far the minimum expected return as defined by 9.45% (FY2021) WACC. 10% OPAP’s growth potential is greater than peers’ 5% Having conducted the peer group analysis, we have reached an implied price equal to €10.98. OPAP’s fair value is estimated by using the PEG ratio as it embodies the expected growth of OPAP in the next 3 years, implying a 34% upside potential from the current ROIC WACC price. Even though OPAP seems overvalued for 2017, the increasing ROE from 17% Source: Team Estimates (FY2017) to 26.5% (FY2019) together with the estimated 3-year EPS CAGR of 13.2% further support our expectations for 34% upside potential. Figure 4: Investment Risks Investment Risks Macroeconomic Risk The most significant risk for OPAP in terms of likelihood and impact is the volatility in the Regulatory Framework Greek macroeconomic environment. To examine the sensitivity of the implied target price VLTs’ Investment to this risk, we have assumed that Greece’s sovereign credit rating will remain constant at Online Competition Caa3 (Moody’s) and we reached a target price of €8.52. Furthermore, we have performed a Relationship with the agents Monte Carlo Simulation on our DCF model to stress several assumptions simultaneously Illegal Betting Markets such as the credit rating of Greece, the Wagers/VLT/day, the cannibalization rate, the Illegal Actions market share loss due to potential market deregulation and the perpetual growth rate from IT and Cyber Security 2027 onwards. The results support our €10.73 DCF target price and return a standard GGR Contribution deviation of €1.12. The price can fluctuate between €8.54 and €12.22 in 90% confidence Source: Team Estimates interval with the minimum observation in our 10,000 iterations being €6.72.
Athens University of Economics and Business 2 Accounting & Finance Department CFA Research Challenge 2017
2. Business Description
Figure 5: Shareholders’ Structure History-Overview OPAP (Greek Organization of Football Prognostics) is the indisputable leader in the Greek 33% Gaming Market since 1958, controlling a leading 72.7% market share. In 2001 the company was listed on the Athens Stock Exchange and in 2013 became fully private as the Greek 62% State transferred the last 33% of OPAP to Emma Delta. The robust business model has 5% enabled OPAP to sustain profitability despite the recession in the Greek economy. Emma Delta Baupost Free Float Games’ Portfolio Analysis Source: Company Data OPAP owns a fully diversified portfolio of 14 unique betting games offered throughout Greece and Cyprus. “PAME STOIHIMA” (a sport betting game launched in 2000), “KINO” (a numerical fixed odds game introduced in 2005) and “SKRATS” (an instant lottery launched in 2014) account for almost 90% of the company revenues. In order to improve the accuracy of our analysis we have classified all 14 games into 4 categories: Lotteries, Sports Betting, Instants/Passives and Other Games (Appendix 12). Figure 6: GGR breakdown € million 2015A 2016* 2017E 2018E 2019E 2020E 2021E
2016 Wagers 2,219 2,206 2,226 2,149 2,083 2,088 2,125 % change -0.57 % 0.89 % -3.47 % -3.04 % 0.21 % 1.79 % 4% Lotteries 12% GGR 754 750 757 730 708 710 722 % of Total 53.9% 53.9% 50.4% 39.7% 33.4% 31.6% 32.3% Wagers 1,385 1,372 1,357 1,378 1,391 1,366 1,268 Sports % change -0.88 % -1.11 % 1.53 % 0.96 % -1.79 % -7.21 % 54% Betting GGR 414 411 406 412 416 409 379 30% % of Total 29.6% 29.5% 27.0% 22.4% 19.7% 18.2% 17.0% Wagers 437 434 451 471 490 506 515 Instants/ % change -0.57 % 3.89 % 4.53 % 3.96 % 3.21 % 1.79 % Passives GGR 170 169 175 183 190 197 200 2021 % of Total 12.1% 12.1% 11.7% 10.0% 9.0% 8.7% 8.9% Wagers 217 221 223 225 227 229 232 32% Other % change 1.46 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 39% Games GGR 61 62 63 63 64 65 65 % of Total 4.4% 4.5% 4.2% 3.4% 3.0% 2.9% 2.9% Wagers 1,011 4,094 6,157 6,682 6,682 % change 305.11 % 50.39 % 8.54 % 0.00 % VLTs 3% 17% GGR 101 450 739 869 869 9% % of Total 6.7% 24.5% 34.9% 38.6% 38.9% Lotteries Sports Betting Wagers 4,257 4,233 5,267 8,317 10,348 10,872 10,822 Instants/Passives Other Games Total % change -0.57 % 24.43 % 57.90 % 24.43 % 5.06 % -0.46 % VLTs GGR 1,400 1,392 1,502 1,840 2,118 2,249 2,236 Source: Company Data, Team Estimates *Pro-forma
The linear regression of the annual change of the wagers (Y variable) on the real GDP Figure 7: GDP-Wagers change (X variable), produces a statistically significant coefficient of 2.13 (t=2.786). Incorporating the real GDP projections of the next 5 years provided by the IMF World Economic Outlook (issued November 2016), we have estimated a strong 5.5% 5Y wager CAGR, reflecting the upside potential of the Greek economy. 20% In order to improve the accuracy of our projections we have performed a divisional breakdown of wagers - Lotteries, Sports Betting, Instants/Passives, Other Games - and have 10% introduced additional drivers tailored to the particularities of each category. The VLTs’ launching is expected to “cannibalize” Lotteries’ Wagers more than 30% during the next 5 0% years limiting Lotteries’ estimated 5-year CAGR from 5.5% to -0.7%. Online Competition in the Sports Betting division will lessen wagers of OPAP by 33% by 2021, leading to - -10% 1.6% estimated 5-year CAGR. Seasonality effects contributing to 2% of Sports Betting wagers variability, have also been integrated in year 2020 in respect with the upcoming -20% European Football Championship. The impact of the “cannibalization” on Instants and % Change in GDP (real) Passives has been estimated at a 2% y-o-y wager decline, that will be counterbalanced by the 5.5% estimated 5Y CAGR implied by GDP projections (Appendix 21). % Change in Wagers Regarding payout to winners, we do not expect significant fluctuations and have used 66%, Source: IMF World Economic Outlook, 70% and 61% payouts for Lotteries, Sports Betting and Instants/Passives, respectively Team estimates (weighted average payouts based on the last 3 years).
Athens University of Economics and Business 3 Accounting & Finance Department CFA Research Challenge 2017
Figure 8: VLTs launching VLTs to Drive Revenue Surge 35,000 35,000 35,000 OPAP has acquired a 10-year exclusive license enabling it to introduce 35,000 VLTs, 25,344 16,500 operated through its network and another 18,500 operated through sub-contractors. 10,536 The roll-out procedure has already started and will gradually be completed by May 1, 2018 (by 2019 for the sub-contracted machines). Incorporating the average €811 wagers/VLT/day generated in Greek casinos and the €1 billion (in GGR) illegal slot machine market, we have assumed a conservative €640 gradually declining to €523 up until 2021 reflecting the maturity of the market. The management’s guidance was that VLTs will operate under an Number of VLTs aggressive 90% payout to winners, gradually declining to 87% up until 2021 according to Source: Team Estimates our estimations. Consequently, VLTs are expected to contribute a tremendous 36% to the aggregate revenues of OPAP by 2021, exceeding every single existing game (Appendix 20). Commercial Network in Greece Figure 9: Commercial Network OPAP offers most of its games through the widest commercial network in Greece (including banks, gas stations and posts). It counts 10,311 points of sale: 4,739 of these are authorized agencies and the rest consist of third party distributors. The new VLT project will contribute to the enhancement of the commercial network with the addition of technologically advanced Gaming Halls under the trademark “OPAP Play”. Each Gaming Hall will be capable of hosting up to 25 VLTs while up to 3 machines can be installed in existing authorized agencies. OPAP has also recently signed several agreements with technological providers concerning the installation of Self-Service Betting Terminals (SSBTs) and Player Account Management (PAM) systems in the existing agencies (Appendix 11). Source: Company Data “2020 Vision” As presented in the new strategic plan “2020 vision”, OPAP aims at constructing a world- class portfolio of products and services. The first strategic step is the expansion of the VLTs network starting with 1,000 VLTs at the end of March 2017. Within the next two years, OPAP will have introduced improved technological infrastructure in the agencies such as self-service devices and e-wallet payments. Regarding services, OPAP has signed an Focused on providing an agreement with Inspired Gaming for the development of virtual betting games which will unparalleled entertainment become available to the customers both via OPAP’s commercial network and online. package All in all, OPAP’s main strategic priority is to serve the stakeholders’ interests. The principal target is to provide an unparalleled entertainment package framed by the principles of responsible gaming. It has also created a strategic plan concerning employees’ development including special training and additional benefit plans. Regarding the State and the Hellenic Gaming Commission, OPAP wants to further enhance the cooperation and avoid potential conflicts. Corporate Social Responsibility (CSR) OPAP has set the foundations of both professional and recreational sport games since 1958. It has left an indisputably positive footprint among the Greek society regarding athletics. It has left an unchallenging Other areas of social contribution are health and employment, with a particular interest in footprint while upholding CSR sensitive social groups and environmental issues. One of the most significant projects OPAP values has undertaken is the renovation of two Children’s Hospitals which started in 2014 (Appendix 13). 3. Industry Overview and Competitive Positioning Figure 10: Wagers of the Greek Gaming Market(€ billion) Business Environment 10 OPAP is able to generate profits in an ever-changing and challenging business environment. The recession in the Greek economy during the last 7 years led to a 41% GDP decline, 26% 5 unemployment rate and 177% debt-to-GDP ratio. The political environment is highly unstable, taking into consideration the frequent elections. OPAP also abides by a unique 0 legal framework for betting games which is subject to numerous sudden changes as well. Adding the rapid social restructuring and the technological advancement, it is clear that the external environment is highly volatile. However, OPAP’s business model is based on long OPAP Casinos lasting pillars enabling it to effectively tackle external challenges with minimum financial State Lotteries Horse Races impact (P.E.S.T.L.E Analysis, Appendix 16). Source: HGC Annual 2015 Report
Athens University of Economics and Business 4 Accounting & Finance Department
Rivarly
New 2 Substitutes entrants 1 3 1 2 Customers Suppliers CFA Research Challenge 2017
Greek Gaming Market Figure 11: GGM participation in the The Greek Gaming Market, has gone through a significant 35% downsizing, following the GDP cumulative 41% decline in GDP (2009-2015). However, it still comprises 0.98% of the 100% 6.73% national GDP which is considerably higher compared to the EU-28 equivalent average of 15.37% 0.59%. Online betting revenues contribute 6.73% to the total wagers in the GGM which is 90% lower compared to the EU average of 15.37%. Key driver for the underperforming online segment is the low Internet penetration rate (69% Greece vs 85% EU). The technological 80% 93.27% 84.63% advancements will enable more people to gain Internet access in the future, creating an 70% upside potential in the Greek online market segment. Although Greece’s GDP per capita is EU Greece the 11th lowest among EU peers, GGR per adult hits an impressive €194, being the 10th Land Based Online highest among the same rank. It is also crucial to highlight that there is a huge illegal betting market estimated at €1 billion (in GGR). This market is strategically important for Source: HGC Annual 2015 Report OPAP as a potential pool of additional revenues in respect with the brand new VLT project.
Figure 12: Exclusive Licenses of Regulatory Framework OPAP The Hellenic Gaming Commission bears the entire responsibility for the regulation of the Lotteries betting games’ market in Greece. Every company has to be licensed by the regulatory Sport Betting authority in order to establish business activity in the Greek Gaming Market. OPAP S.A. and its subsidiaries have acquired several exclusive licenses for their products as shown in VLTs Figure 12. However, the regulatory framework is significantly rigid and only few other Horse Races companies have maintained special licenses, mostly casinos and online betting platforms. Instants Consequently, there are numerous obstacles for potential new entrants protecting the dominant position of OPAP. Competitive Positioning Online Betting Classic Betting Porter’s Five Forces Source: Company Data The Greek Gaming Market scores an average of 1.8/5 which means that it is barely competitive, enhancing OPAP’s strategic position. Concerning rivalry, there are 9 casinos and 24 online betting platforms accounting for 22% of the market. Online betting platforms Figure 13: Porter’s Five Forces offer almost identical online sports betting games with those of OPAP but competition takes Rivarly place only in a limited market share. The illegal gaming market also acts like an “invisible” competitor especially for the upcoming VLT project. All in all, rivals do not pose a serious New 2 threat, taking into consideration the market capitalization and product diversity of OPAP. Substitutes entrants 1 3 Moving on to the substitute products, there are only 6 games offered exclusively at casinos. However, the entrance fees and the distance of casinos from major city centers 1 2 reduce the substitution threat for OPAP. In the gaming market, companies are not highly Customers Suppliers dependent on specific suppliers and the latter do not hold a strong bargaining position. The customer base of OPAP consists of millions of people with low betted amount per capita. So, the company does not rely on specific clients and only the agents hold some bargaining power. Last but not least, the existing regulatory framework prevents new companies from entering the Greek Gaming Market. Even if it did not exist, the market capitalization and Source: Team Estimates the wide commercial network that OPAP has established, would make it extraordinarily difficult for them to enter (Appendix 14). SWOT Analysis Figure 14: SWOT Analysis OPAP is a robust company, spearheading the future of the Greek Gaming Market. The successful business model has been built on steady, long-lasting pillars such as the diversified gaming portfolio consisting of 15 games, including VLTs and the widest commercial network of 4,739 POS throughout Greece and Cyprus. As a result, OPAP is the leader in the Greek Gaming market holding a 72.7% market share. In financial terms, OPAP generates strong cash flows that translate into an impressive dividend payout stream of over 100% to the shareholders. Concerning weaknesses, OPAP has to face 24 online sports betting platforms holding the 12% of the market and also to cope with game cannibalization coming from the VLTs introduction. We have estimated cannibalization to cut down 30% on OPAP’s revenues during the next 5 years. The VLTs project in conjunction with the unexploited illegal slot machine market is definitely an opportunity for the company to increase aggregate GGR by more than 60% by 2021, according to our estimations. On the other hand, OPAP has to face threats like the continuous increasing volatility in the regulatory framework and the highly unstable macroeconomic environment. Source: Team Estimates However OPAP is able to effectively manage upcoming threats and transform them into opportunities (Figure 14, Appendix 15).
Athens University of Economics and Business 5 Accounting & Finance Department CFA Research Challenge 2017
4. Financial Analysis
Figure 15: Profitability margins 1.Profitability Ratios 30% 22% 22% 2015A 2016* 2017E 2018E 2019E 2020E 2021E 15% margin 32.88% 32.87% 28.52% 22.12% 20.47% 20.68% 20.66% 25% 13% GGR 5% growth 1.60% -0.58% 7.94% 22.50% 15.12% 6.17% -0.56% 20% margin 44.68% 39.29% 39.80% 37.22% 35.31% 34.59% 34.59% NGR growth 1.93% -12.56% 9.34% 14.53% 9.21% 4.01% -0.54% 15% -10% margin 26.94% 20.02% 21.79% 22.16% 22.28% 22.36% 22.35% EBITDA 10% growth 8.82% -26.13% 17.47% 24.62% 15.71% 6.57% -0.63% margin 21.63% 15.83% 18.01% 17.62% 17.16% 17.86% 16.19% 5% EBIT -31% growth 2.22% -27.25% 22.83% 19.79% 12.11% 10.54% -9.88% 0% margin 15.00% 10.41% 11.74% 11.67% 11.66% 12.36% 11.18% Net Profit growth 5.36% -31.02% 21.80% 21.72% 15.03% 12.51% -10.03%
EBITDA 2.Solvency Ratios Net Profit 2015A 2016* 2017E 2018E 2019E 2020E 2021E Net Profit Growth Total Debt to Equity 12.23% 34.73% 35.22% 37.00% 29.48% 22.48% 24.81% Source: Company Data, Team Estimates Interest Coverage Ratio 31x 8.5x 10.1x 12.3x 18.7x 26.6x 27.3x Source: Company Data, Team Estimates *Pro-forma Figure 16: NGR per VLT in 2017 NGR margin decomposition Wagers 233,600 Increased GGR state contribution constrains 2016 margins Payout (90%) (210,240) GGR 23,360 During 2016, the Hellenic Parliament decided to increase the state tax contribution on Tax Contribution GGR for OPAP from 30% to 35%. Consequently, OPAP’s 2016 profitability margins have (8,176) (35%) declined reflecting the increased GGR contribution from €412 million (FY2015) to €487 Agent’s Commission million (FY2016). (5,840) (25%) Agents’ Commissions Vendor’s Commission (2,920) Agent commission fees for the 16,500 VLTs that will be operated through the commercial (12.5%) network of OPAP (OPAP “Play”), will be calculated as 25% of the GGR generated by Net Gaming Revenue 6,424 these machines. The rest 18,500 VLTs will bear a 30% sub-contractor commission fee Amounts in €, Source: Team Estimates instead of 25% agent commission. The relevant fees for the existing games are calculated as a percentage of Wagers and they are classified into 3 categories – 8%, 10%, 12% - according to the game. The weighted average commission rate accounts for 8.4% of the Figure 17: Amortization wagers or 25.4% of the GGR. However, OPAP is in process of renegotiating the 150 5.4% 4.2% 4.4% relationship with the agents to fully align the interests of both parties. As a result we 3.8% 100 2.8% expect a decline in the average commission rate from 8.4% to 8%. 2.3% Vendors’ Commission to limit NGR margin 50 The cost of the entire 35,000 machines will be covered through a Revenue Sharing Agreement with vendors and OPAP will not be burdened with any upfront payments. 0 Vendors’ commissions are expected to restrict NGR margin by 4.8% under full deployment, with the actual rates varying from 10% up to 15%, depending on the contract. Horse races Instants/Passives Regarding the first 16,500 VLTs, contracts have been signed with 4 leading multinational Lotteries/Sports VLTs vendors: IGT, Inspired Gaming, Scientific Gaming and Synot. Amort./GGR Licenses’ Amortization will not restrain EBIT margin Source: Team Estimates OPAP has paid €560 million (€16,000 per VLT) to acquire the exclusive right to operate 35,000 VLTs. The license will be amortized using a method that “would reflect the deployment and the economic ramp up of the business” according to Michal Houst (CFO). Figure 18: Dividend Policy The rest of the licenses are amortized using the straight line method (Figure 17). 12.5% 11.2% 12.0% 9.8% 11.3% Growing FCFs will be distributed to the shareholders 1.00 8.8% 0.75 OPAP’s FCFs are expected to grow from €161 million (FY2016) to €393 million 0.50 (FY2021), reaching a 15.07% FCF Yield. The company is committed to distributing the 0.25 entire FCFs to the shareholders with Dividend Yield always exceeding 9%. Aggregate DPS 0.00 will reach a €1.03 peak in 2020 (Figure 18), following the 11.5% estimated 5Y profit CAGR. Dividend yield for the same year has been estimated at an outstanding 12.5%, making OPAP’s dividend policy one of the most generous in the Greek stock market. In DPS Dividend Yield the long term we have considered a slightly more conservative and sustainable dividend Source: Team Estimates policy using 100% payout ratios. Athens University of Economics and Business 6 Accounting & Finance Department CFA Research Challenge 2017
Figure 19: Debt Levels (€ million) Leverage 400 OPAP has signed 7 loan contracts with major systemic banks reaching an aggregate €365 300 million with 34.7% Debt-to-Equity ratio (FY2016). We have considered that OPAP will 200 renew 2 expiring loan contracts in order to maintain the same level of leverage in 2017 and 100 2018 to cover capex for technological upgrades in the agencies. Later on, the completion of 0 VLTs launching will boost cash flow generation and OPAP will be able to gradually pay back loans starting with a €90 million repayment in 2019. Outstanding Liquidity to be sustained Long term Loans Short term Loans Cash and cash equivalents account for an impressive 82% of total current assets (FY2016) Source: Company Data, Team Estimates and are able to cover the entire current liabilities (1x Cash Ratio). Despite the anticipated €135 million capex for technological upgrades in the agencies, OPAP will preserve the exceptional liquidity reaching a 1.59x CFO/Net profit ratio in 2021. DuPont Analysis Figure 20: DuPont Analysis 2015A 2016* 2017E 2018E 2019E 2020E 2021E Net Profit Margin [A] 15.00% 10.41% 11.74% 11.67% 11.66% 12.36% 11.18% 31% 31% Asset Turnover [B] 0.8x 0.8x 0.9x 1.1x 1.4x 1.6x 1.7x 26% ROA [AxB] 12.3% 8.5% 10.4% 13.1% 16.5% 20.1% 19.3% 22% 20% 19% Equity Multiplier [C] 1.4x 1.6x 1.6x 1.7x 1.6x 1.6x 1.6x 17% 17% 16% ROE [AxBxC] 17.45% 13.78% 17.02% 21.76% 26.47% 31.23% 31.00% 14% 13% 12% Source: Team Estimates *Pro-forma 10% 8% Net profit margin will be reduced from 15% (FY2015) to 10.41% (FY2016) driven mainly by the 5% increase in the state tax contribution levied upon the GGR. From 2017 onwards, it will be slightly improved in respect with the low operating expenses of the VLTs project. Asset Turnover will reach an outstanding 1.7x in 2021 taking into account the 9.95% estimated 5-year GGR CAGR and the gradually declining asset value due to an elevated annual amortization of over €100 million. We do not expect significant fluctuations in the ROA ROE Equity Multiplier so as to reflect the estimated relatively stable capital structure. Source: Company Data, Team Estimates Consequently, ROE is expected to gradually double up by 2021 and reach 31% (Extended DuPont, Appendix 5). 5. Valuation WACC (Weighted Average Cost of Capital) 2017 Cost of Equity (CoE): 14.54% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Rf + Beta *(ERP + CRP) Rf 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 2017 Equity Risk Premium (ERP): 5.47% Beta 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 Real GDP + Inflation +Div.Yield ERP 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% growth (EU) (EU) (Stoxx) 1.6% + 1.1% + 2.77% CRP 12.63% 10.51% 9.12% 9.12% 7.72% 7.72% 7.72% 7.72% 7.72% 7.72% Rating Caa2 Caa1 B3 B3 B2 B2 B2 B2 B2 B2 2017 Country Risk Premium(CRP): 12.63% Credit Default CoE 14.54% 12.87% 11.76% 11.76% 10.66% 10.66% 10.66% 10.66% 10.66% 10.66% *σ(Equities) /σ(Bonds) Spread CoD 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 10.4% * 37.83 / 31.16 D/(E+D) 26.05% 27.01% 22.77% 18.35% 19.88% 19.88% 19.88% 19.88% 19.88% 19.88% *We have assumed 0% WACC 11.94% 10.62% 10.12% 10.44% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% P/E growth Source: Team Estimates To start with, we have used the trailing redemption yield of 10-year German bonds as Risk Free Rate (0.24%) and Beta (0.79) has been calculated by performing a linear regression of Moody’s Rating and Credit Default Spreads OPAP’s monthly returns on ATHEX’s monthly returns (2013-2016). The Country Risk Caa2 10.40% Premium (CRP) has been calculated as the credit default spread corresponding to the 2017 Caa1 8.66% sovereign credit rating of Greece (Moody’s), adjusted by equity market volatility. CRP B3 7.51% declines from 12.63% (FY2017) to 7.72% (FY2026) following our estimations for B2 6.36% improved credit rating from Caa2 (FY2017) to B2 (FY2026). The Equity Risk Premium (ERP) of 5.47% has been estimated employing Ibbotson’s build-up method. Taking into account that the cost of debt is not estimated to fluctuate, WACC is expected to be improved from 11.94% (FY 2017) to 9.45% (FY2026). Terminal Growth Rate At the end of the 10-year period, we have estimated an additional FCFF for 2027 in order to integrate revenues’ adjustment in agreement with the expiring VLTs license. We have applied conservative assumptions in 2027, including a 0% terminal growth rate taking into
Athens University of Economics and Business 7 Accounting & Finance Department CFA Research Challenge 2017
account the volatility in the regulatory framework. Figure 21:Capex (€ million) Capital Expenditure (Capex) 100 In accordance with management guidance, we expect €90 million capital expenditure in 2017 concerning the installation and improvement of technological infrastructure in 50 agencies and Gaming Halls. In further detail, OPAP will have to proceed to technological upgrades in order to support the operation of VLTs and will also introduce the Self Service Betting Terminals (SSBTs) gradually, throughout its commercial network. In 2018, we 0 expect an additional €45 million CAPEX for completing the technological upgrade. Thereafter, we do not expect significant capital expenditures. Tangible Assets Intangible Assets Discounted Free Cash Flow to the Firm Model (FCFF) Source: Team Estimates Our Discounted Free Cash Flows to the Firm model produces a 12-month target price of €10.73 implying a 30.8% upside potential from the current price of OPAP. We have opted for a 10-year initial stage FCFF in order to integrate the financial impact of potential market restructuring due to the expiration of exclusive VLT licenses in 2027. € million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027* PV 2017-2026 2,216.0 NOPAT 198.5 236.4 262.5 288.1 259.9 254.7 254.9 258.0 266.7 254.1 283.3 PV Terminal Value 1,267.3 Depr./Amort. 56.6 83.7 108.5 101.2 137.7 137.7 137.7 137.7 129.8 121.8 42.5 CAPEX 91.0 46.0 5.0 4.0 3.0 3.0 3.0 3.0 3.0 3.0 42.5 EV 3,483.3 Δ(NWC) 2.8 11.3 9.4 4.2 1.3 -1.4 -0.1 0.7 0.7 -0.9 0.1 Net Debt -71.3 FCFF 161.4 262.8 356.6 381.2 393.2 390.8 389.7 392.0 392.8 373.8 283.2 Market Cap. 3,412.0 WACC 11.9% 10.6% 10.1% 10.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4% Shares Outst. 318,112,195 Target Price 10.73 Disc. FCFF 161.4 234.8 288.0 279.5 261.1 237.1 216.0 198.5 181.7 158.0 Source: Team Estimates *2027 has been used only for Terminal Value calculation Residual Income Valuation The Residual Income Model returns a 12-month target price of €10.30 implying 25.6% upside potential from the current price of OPAP. The model is based on identical 10-year projections with the FCFF model in order to verify the target price implied by the latter. We have discounted the added value (residual income) generated each year that is calculated from the difference between NOPAT (Net Operating Profits After Tax) and PV 2017-2026 868.8 Capital charge. ROIC outperforms the WACC level each year driven by the sustainable PV Terminal Value 872.1 profitability levels and declining invested capital, created by the VLT investment. Equity+Debt 1,415.8 € million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027* EV 3,156.7 NOPAT 198.5 236.4 262.5 288.1 259.9 254.7 254.9 258.0 266.7 254.1 283.3 Net Debt -71.3 Inv. Capital 1,416 1,401 1,351 1,208 1,090 982 982 982 982 982 982 Market Cap. 3,085.4 Res. Income 29.5 87.5 125.7 162.0 156.9 162.0 162.1 165.2 174.0 161.3 190.6 Shares Outst. 318,112,195 ROIC 14% 17% 19% 24% 24% 26% 26% 26% 27% 26% Target Price 10.30 WACC 11.9% 10.6% 10.1% 10.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4% Disc. RI 29.5 79.1 103.1 120.4 106.6 100.5 91.9 85.6 82.3 69.7 Source: Team Estimates *2027 has been used only for Terminal Value calculation Peer Group Analysis
Figure 22: In 2017, OPAP seems to P/E EV/EBITDA ROE EPS CAGR PEG be overvalued…. 2017 2018 2019 2017 2018 2019 2017 2018 2019 3FY 2017 William Hill 12.5 11.7 10.9 7.6 7.0 6.3 16.8% 16.8% 16.3% 13.7% 0.9 14.0 14.8 Ladbrokes 18.4 12.2 9.7 6.6 5.5 n/a 12.8% 15.7% 15.9% 29.8% 0.6 Paddy P. 26.8 21.9 19.3 15.0 14.6 n/a 27.8% 19.2% 9.4% 15.7% 1.7 7.8 8.9 Betsson 14.5 15.9 16.1 9.7 10.1 9.8 25.0% 21.1% 20.9% -2.9% -4.9 Rank Group 13.4 12.4 11.5 6.6 5.9 5.4 15.8% 15.8% 15.7% 4.5% 3.0 IGT 12.4 11.5 10.7 8.1 2.1 n/a 9.6% 10.1% 14.5% 5.0% 2.5 Median 14.0 12.3 11.2 7.8 6.5 6.3 16.3% 16.3% 15.8% 9.4% 1.50 OPAP 14.8 12.2 10.6 8.9 7.2 3.9 17.0% 21.8% 26.5% 13.2% 1.1 P/E EV/EBITDA Prem./Disc. 6% -1% -6% 14% 11% -38% 4% 34% 68% 41% -25% Median OPAP Source: Thomson One, Team Estimates Source: Thomson One, Team Estimates According to the peer group analysis we have reached the conclusion that OPAP’s implied fair value equals €10.98, having an upside potential of 34%. In our analysis, we have used a group of six peer companies which are all European large caps firms operating in the gaming and gambling sector with similar gross revenue.
Athens University of Economics and Business 8 Accounting & Finance Department CFA Research Challenge 2017
Figure 23: ….but in 2019 it will be Based on the 2017 P/E and EV/EBITDA ratios, OPAP seems overvalued compared to undervalued peers by 6% and 14% respectively. However, using the same multipliers in 2019, we noticed that OPAP is undervalued compared to peers by 6% and 38% (using P/E 11.2 10.6 and EV/EBITDA respectively). OPAP’s 2019 ROE is estimated at 26.5% which is 68% 6.3 3.9 greater than the peer median. To capture this growth potential in valuation, we have used the PEG ratio. The 3Y EPS CAGR that is expected at 13.2% and exceeds the peer median by 9.4%, provides a PEG of 1.1, 25% in discount compared to the 1.50 of the peer group P/E EV/EBITDA median. This 25% discount leads us to a 34% upside potential for OPAP. The €10.98 Median OPAP implied target price has been derived exclusively by this 34% upside potential and reflects Source: Thomson One, Team Estimates the expectations for increased revenue generation related to the VLT project. 6. Investment Risks Figure 24: Risk Matrix Economic Risks Macroeconomic Risk in Greece (ER1): Greece is going through an adverse recession period that has devastating implications for the Greek economy as a whole. Political stability is yet to be reclaimed and the possibility of a GREXIT has not completely disappeared while the current sovereign rating is very low and may remain low for a long time. Potential lack of liquidity in the banking system increases the macroeconomic risk. Regulatory Risks Regulatory Framework (RR1): We consider OPAP’s monopoly to be crucial for the company’s longevity and prosperity. A change in the regulatory framework will definitely lead to a significant revenue loss for the company. In such a case, there would be an asset value drop and OPAP would have to redefine its strategy towards new investment projects. Tax Contribution (RR2) : In January 2013, a 30% GGR contribution was introduced for OPAP and further increased to 35% in January 2016. An additional special tax contribution Source: Team Estimates of €0.05 on some lotteries was also introduced in 2016. Although we do not expect a further increase in tax contribution, volatility in tax rates is highly possible to affect OPAP. Market Risks Illegal Betting Markets (MR1): One of OPAP’s main goals, regarding the VLT project, is to gain the market share that illegal rivals currently own. However, the revenues of the illegal rivals are not burdened with tax and as a result they could offer more attractive returns compared to those of OPAP, without altering their profit margins. The illegal market may also expand in other segments (apart from slot machines) that operate as Figure 25: Altman’s Z Score substitute games. Online Competition (MR2): Currently there are 24 companies that operate under transitional regime. These companies are considered highly competitive as they offer attractive game returns and operate in tax heavens. It is highly possible that they will get an official license after 2020 and they will increase capital investments. Operating Risks Source: Company Data, Team Estimates VLT’s investment (OR1): The VLT’s project is anticipated to almost double the company’s GGR. As we are referring to an unexploited market, our estimations concerning Wagers/VLT/day are subject to increased uncertainty due to the lack of historical data regarding the VLT market segment. Relationship with agents (OR2): There have been reported conflicts between the agents, represented by their federation (POEPPP), and OPAP’s BoD, concerning the commission percentage on the wagers. Consequently, we expect a significant risk to come up during the renegotiation of the relationship between the two parties that OPAP wants to achieve. IT and Cyber Security (OR3): Adaptation to the latest technological advances comes with a significant cost for OPAP. Existing games depending on algorithms (i.e. VLTs and Kino) might become targets of an attack through the Cyber network. The implications in case of an attack may vary, from a simple “crash” of the network, to severe loss of trustworthiness among customers. Illegal actions connected with sports betting (OR4): Match “fixing” for the purpose of making risk free profit on betting is a technique that has been witnessed worldwide. Although it is quite difficult to notice, it can be documented at times, through the betting patterns of a group of players, potentially affecting the sports reputation and customers betting behavior. Athens University of Economics and Business 9 Accounting & Finance Department CFA Research Challenge 2017
Figure 26: Risk Scenarios Risk Stressed Variable Price Risk Scenarios ER 1 WACC €8.52 RR 1 VLTs Number €8.83 We have stressed individual variables (ceteris paribus) on our FCFF model to illustrate the OR 1 Wagers/VLT/day €9.91 volatility of the target price to negative scenarios related to the most important risk MR 2 Market Share €10.16 categories. Starting with ER 1, we got a target price of €8.52 assuming that Greece’s OR 2 Agents’ Commission €10.22 sovereign credit rating will not be upgraded and WACC will remain constant at 12.78%. In Source: Team Estimates case of an unexpected change in the regulatory framework (RR 1) that prevents the Figure 27: Monte Carlo Simulation deployment of the 18,500 sub-contracted VLTs, target price has been estimated at €8.83. If our assumptions regarding Wagers/VLT/day from 2020 onwards (OR 1) are too optimistic (wagers/VLT/day €400 instead of €523), the target price will be €9.91. In case that online competitors acquire 30% of OPAP’s wagers instead of 9% in 2020 (MR 2), the target price will slightly drop at €10.16. Lastly, if potential agent strikes prevent OPAP from reducing the agent commission fees, we will get a target price of €10.22. Monte Carlo Simulation We have selected 3 major risks - ER1, RR1, OR1- and we have stressed the relevant assumptions of our FCFF model by performing a Monte Carlo Simulation. We have set our Statistics Summary major assumptions such as the credit rating of Greece, the Wagers/VLT/day, the Min 6.72 Variance 1.26 cannibalization rate, the market share loss due to potential market deregulation and the Max 16.17 Skewness 0.55 perpetual growth rate from 2027 onwards, as dynamic variables following certain statistical Mean 10.21 Kurtosis 3.72 distributions. After performing 10,000 iterations, we have reached a mean target price of Std Dev 1.12 Median 10.11 €10.21 with €1.12 Standard Deviation. The minimum value of the final distribution is €6.72 Number of Iterations: 10,000 reflecting the worst case scenario regarding revenue generation and macroeconomic Number of Inputs: 30 recovery of Greece. Our estimation is that company price will fluctuate between €8.54 and Source: Team Estimates €12.22 as defined from the 90% confidence level (Appendix 25). 7. Corporate Governance OPAP S.A. has adopted The Hellenic Corporate Governance Code (Code) since 2013, Figure 28: BoD Structure aiming at developing a Group Code of Conduct in alignment with high ethical standards. Employee engagement is key for OPAP as evidenced by the high involvement of the 23% company's staff in the engagement survey results and initiatives (focus Group sessions, cooperation with PwC on engagement results interpretation and improvement). It is the BoD’s firm belief that the compliance with the best practice advice from regulatory 54% and governance bodies should be in accordance with business core values and objectives. 23% OPAP aims to maximize shareholder value and manage the business effectively, responsibly and with integrity in order to create effectiveness, accountability and maintain the trust of their stakeholders. In addition, the Company’s management and employees have read and Non executives understood the Code and they will adhere to and comply with its principles and provisions. Independent non Reports on employee compliance are subject to review by the Audit Committee. Moreover, executives regarding whistleblowing, illegal gaming and responsible gaming, hotlines are operated by Executives OPAP and the reports they develop can be reviewed by the Audit Committee. To further support our argument for enhanced integrity, we have calculated the Beneish’s M score (- Source: OPAP Financial Statements 2.36, Appendix 23), which classifies the reporting practices of OPAP as non manipulating and high quality ones. Last but not least, we have performed an assessment of major aspects related to corporate governance (Figure 29, Appendix 22) and we have reached the Figure 29: Beneish’s M Score conclusion that OPAP has developed a framework of high added value principles enabling it to achieve the best practices witnessed worldwide. Figure 30: CG major aspects assessment
Composition The Annual General 5 Information and Support Meeting 4 4 3 3 3 2 Source: Team Estimates Relations with 3.5 1 3.5 Evaluation shareholders 0
Remuneration Committee3.5 3.5Financial and Business and Director's Report Reporting 3 Audit Committee and 4Risk Management and Auditors' Report Internal Control Source: Team Estimates
Athens University of Economics and Business 10 Accounting & Finance Department CFA Research Challenge 2017
Appendix 1 : Profit & Loss Statement
(All data are in 000s) 2014A 2015A 2016* 2017E 2018E 2019E 2020E 2021E Amounts wagered 4.259.072 4.257.317 4.233.004 5.267.047 8.316.699 10.348.278 10.871.568 10.821.730 Amounts to the winners -2.881.393 -2.857.646 -2.841.514 -3.765.136 -6.476.933 -8.230.400 -8.622.958 -8.585.750 Revenue (GGR) 1.377.679 1.399.671 1.391.490 1.501.910 1.839.766 2.117.878 2.248.611 2.235.980 GGR contribution -404.535 -411.964 -487.022 -525.669 -643.918 -741.257 -787.014 -782.593 Agents' Commission -359.653 -362.369 -357.697 -365.783 -428.216 -437.717 -437.523 -433.536 Revenue Sharing with vendors -12.632 -56.290 -92.349 -108.588 -108.588
Sub contractor's fee 0 0 0 0 -26.631 -98.779 -137.751 -137.751 Net Gaming Revenue (NGR) 613.491 625.338 546.772 597.827 684.710 747.776 777.735 773.512 Other operating income 23.736 128.662 108.896 110.724 112.589 114.490 116.430 118.408 Payroll expenses -58.571 -46.098 -58.490 -55.829 -56.934 -56.934 -56.934 -56.934 Marketing Expenses -78.904 -69.468 -59.705 -60.887 -62.093 -62.093 -62.093 -62.093 Other operating expenses -153.228 -261.332 -258.924 -264.635 -270.507 -271.415 -272.331 -273.257 EBITDA 346.524 377.102 278.549 327.200 407.764 471.825 502.806 499.635 Depreciation/Amortization -50.321 -74.332 -58.278 -63.644 -90.662 -115.485 -108.178 -144.678 and impairment Results from operating activities 296.203 302.770 220.270 263.557 317.102 356.340 394.628 354.958 Financial Income 3.786 1.732 3.581 2.471 2.861 3.251 3.641 4.031 Financial Expenses -2.192 -6.400 -20.362 -25.097 -25.097 -19.317 -14.500 -14.500 Other financial income/expenses 7.782 1.490 450 473 496 521 547 574 Profit before Tax 305.579 299.592 203.939 241.403 295.361 340.795 384.316 345.063 Income tax expense -105.878 -100.835 -59.142 -70.007 -85.655 -98.830 -111.452 -100.068 Deffered taxes -477 11.143 0 0 0 0 0 0 Profit after tax 199.224 209.900 144.797 171.396 209.707 241.964 272.864 244.995 Source: Team Estimates *Pro-forma
(All data are in 000s) 2022E 2023E 2024E 2025E 2026E Amounts wagered 10,759,502 10,757,831 10,792,268 10,827,043 10,687,123 Amounts to the winners -8,542,168 -8,540,153 -8,563,431 -8,586,937 -8,503,671 Revenue (GGR) 2,217,335 2,217,678 2,228,837 2,240,105 2,183,452 GGR contribution -776,067 -776,187 -780,093 -784,037 -764,208 Agents' Commission -428,558 -428,424 -431,179 -433,961 -422,768 Revenue Sharing with vendors -108,588 -108,588 -108,588 -108,588 -108,588 Sub contractor's fee -137,751 -137,751 -137,751 -137,751 -137,751 Net Gaming Revenue (NGR) 766,371 766,728 771,226 775,769 750,138 Other operating income 118,408 118,408 118,408 118,408 118,408 Payroll expenses -56,934 -56,934 -56,934 -56,934 -56,934 Marketing Expenses -62,093 -62,093 -62,093 -62,093 -62,093 Other operating expenses -273,257 -273,257 -273,257 -273,257 -273,257 EBITDA 492,494 492,851 497,349 501,892 476,261 Depreciation/Amortization -137,678 -137,678 -137,678 -129,761 -121,844 and impairment Results from operating activities 354,817 355,173 359,672 372,131 354,416 Financial Income 3,628 3,265 2,939 2,645 2,380 Financial Expenses -13,775 -13,086 -12,432 -11,810 -11,220 Other financial income/expenses 500 500 500 500 500 Profit before Tax 345,169 345,852 350,678 363,465 346,077 Income tax expense -100,099 -100,297 -101,697 -105,405 -100,362 Deffered taxes 0 0 0 0 0 Profit after tax 245,070 245,555 248,981 258,060 245,714 Source: Team Estimates
Athens University of Economics and Business 11 Accounting & Finance Department CFA Research Challenge 2017
Appendix 2 : Balance Sheet
(All data are in 000s) 2014A 2015A 2016* 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε Intangible Assets 1,269,998 1,222,987 1,201,548 1,159,404 1,090,242 1,000,257 916,580 795,402 Tangible Assets(for own use) 44,205 56,238 53,506 130,006 161,506 148,006 134,506 121,006 Investments in Real Estate Property 1,540 1,398 1,398 1,398 1,398 1,398 1,398 1,398 Goodwill 14,183 14,183 14,183 14,183 14,183 14,183 14,183 14,183 Investments in associates 9,732 11,225 11,675 11,792 11,910 12,029 12,149 12,271 Long-term Receivables 527 112 51 51 51 51 51 51 Other Non Current Assets 3,177 2,962 3,035 3,035 3,035 3,035 3,035 3,035 Deffered tax asset 0 9,815 0 0 0 0 0 0 Total Non Current Assets [A] 1,343,362 1,318,920 1,285,396 1,319,869 1,282,325 1,178,959 1,081,902 947,346 Cash and Cash Equivalents 297,418 301,695 345,111 293,717 270,511 221,255 196,350 246,526 Inventories 2,976 4,166 2,854 2,965 3,100 3,223 3,327 3,387 Receivables 92,250 55,234 41,745 45,057 55,193 63,536 67,458 67,079 Other current assets 16,731 28,818 32,131 32,131 32,131 32,131 32,131 32,131 Total Current Assets [B] 409,375 389,913 421,840 373,871 360,935 320,146 299,267 349,124 Total Assets [A+B] 1,752,737 1,708,833 1,707,236 1,693,739 1,643,259 1,499,105 1,381,169 1,296,469
Short Term Loans 1 32,097 90,000 75,000 140,000 125,000 100,000 50,000 Trade Payables 170,353 127,091 126,372 127,000 126,012 125,085 124,941 123,287 Tax Liabilities 178,228 129,942 54,382 54,382 54,382 54,382 54,382 54,382 Other Payables 109,301 35,853 65,448 65,448 65,448 65,448 65,448 65,448 Short-term Liabilites [C] 457,883 324,983 336,202 321,830 385,842 369,915 344,771 293,117 Long Term Loans 0 115,000 275,000 290,000 225,000 150,000 100,000 150,000 Differed Tax Liability 1,284 0 0 0 0 0 0 0 Employee benefit plans 847 1,036 1,036 1,036 1,036 1,036 1,036 1,036 Provisions 51,316 59,061 37,676 38,053 38,433 38,818 39,206 39,598 Other Long-term Liabilities 6,343 5,926 6,482 6,482 6,482 6,482 6,482 6,482 Long-term Liabilities [D] 59,790 181,023 320,194 335,571 270,951 196,336 146,724 197,116 Shareholder's Equity [E] 1,235,064 1,202,827 1,050,840 1,036,339 986,467 932,854 889,674 806,237 Total Shareholders' Equity 1,752,737 1,708,833 1,707,236 1,693,739 1,643,259 1,499,105 1,381,169 1,296,469 and Liabilities [C+D+E] Source: Company Data, Team Estimates *Pro-forma
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Appendix 3 : Cash Flow Statement
(All data are in 000s) 2014A 2015A 2016* 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε Profit before tax 305,579 299,592 203,939 248,403 302,361 347,795 391,316 352,063 Depreciation, Amortization and Impairment 50,321 74,332 58,278 56,644 83,662 108,485 101,178 137,678 Financial Result -3,312 -858 16,331 22,154 21,740 15,545 10,312 9,895 Other provisions 1,532 10,322 -21,385 377 381 384 388 392 Change in associate investments -7,792 -1,493 -450 -117 -118 -119 -120 -121 Sub Total 346,328 381,895 256,714 327,460 408,026 472,090 503,074 499,906 Change in Inventories -724 -1,191 1,312 -111 -135 -123 -104 -60 Change in Receivables and other assets -41,417 26,609 10,164 -3,313 -10,136 -8,342 -3,922 379 Change in Payables(except banks) 73,988 -59,424 29,432 628 -988 -926 -144 -1,655 Tax payment -93,670 -149,453 -124,887 -72,037 -87,685 -100,860 -113,482 -102,098 Cash Flow From Operating Activities [A] 284,505 198,436 172,734 252,628 309,083 361,838 385,422 396,472 Purchase of intangible assets 38,142 -12,441 -21,192 -1,000 -1,000 -1,000 -1,000 -1,000 Purchase of tangible assets -8,499 -27,977 -12,915 -90,000 -45,000 -4,000 -3,000 -2,000 Interest received 3,297 1,350 4,031 2,943 3,357 3,772 4,188 4,605 Cash Flow From Investing Activities [B] 32,940 -39,068 -30,076 -88,057 -42,643 -1,228 188 1,605 Change in borrowing -181,750 147,096 217,903 0 0 -90,000 -75,000 0 Treasury shares acquisition 0 -2,719 -3,916 0 0 0 0 0 Interest Expenses -437 -720 -20,362 -25,097 -25,097 -19,317 -14,500 -14,500 Dividends paid -79,811 -298,750 -292,867 -190,867 -264,549 -300,547 -321,014 -333,401 Cash Flow From Financing Activities [C] -261,998 -155,093 -99,243 -215,965 -289,646 -409,864 -410,515 -347,901 Cash and Cash Equivalents (beginning of fiscal year) 242,061 297,418 301,695 345,111 293,717 270,511 221,255 196,350 Change in Cash and Cash Equivalents [A+B+C] 55,447 4,275 43,416 -51,394 -23,206 -49,255 -24,905 50,176 Cash and Cash Equivalents (end of fiscal year) 297,508 301,693 345,111 293,717 270,511 221,256 196,350 246,526 Source: Team Estimates *Pro-forma
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Appendix 4 : Financial Ratios
2014A 2015A 2016* 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε Panel A: Profitability Ratios
Gross Margin 32.35% 32.88% 32.87% 28.5% 22.1% 20.5% 20.7% 20.7% Net Gaming Margin 44.53% 44.68% 39.29% 39.8% 37.2% 35.3% 34.6% 34.6% EBITDA Margin 25.15% 26.94% 20.02% 21.8% 22.2% 22.3% 22.4% 22.3% EBIT Margin 21.50% 21.63% 15.83% 18.0% 17.6% 17.2% 17.9% 16.2% NOPAT Margin 13.96% 15.16% 11.24% 12.8% 12.5% 12.2% 12.7% 11.5% Net Profit Margin 14.46% 15.00% 10.41% 11.7% 11.7% 11.7% 12.4% 11.2% Return on Equity 16.13% 17.45% 13.78% 17.0% 21.8% 26.5% 31.2% 31.0% Return on Assets 11.89% 12.13% 8.48% 10.4% 12.9% 15.7% 19.3% 18.7% Return on Net Operating Assets 19.36% 21.37% 14.76% 17.6% 21.0% 25.0% 30.3% 31.1% Panel B: Solvency Ratios
Total Debt to Equity 0.00% 12.23% 34.73% 35.22% 37.00% 29.48% 22.48% 24.81% Net Debt to Equity -24.08% -12.85% 1.89% 6.88% 9.58% 5.76% 0.41% -5.77% Total Debt to EBITDA 0.00 0.39 1.31 1.12 0.90 0.58 0.40 0.40 Interest Coverage Ratio (With Profits) 90.89 32.80 7.11 7.03 8.55 12.78 19.16 17.24 Interest Coverage Ratio (With Cash Flows) 129.79 31.01 8.48 10.07 12.32 18.73 26.58 27.34 Panel C: Efficiency Ratios
Total Asset Turnover 0.79 0.82 0.82 0.89 1.12 1.41 1.63 1.72 PP&E Turnover 29.46 27.87 25.36 16.37 12.62 13.69 15.92 17.50 Inventory Turnover 714.56 391.95 396.44 516.18 606.62 669.82 686.50 665.97 Trade Receivables Turnover 21.67 18.98 28.70 34.61 36.70 35.68 34.33 33.24 Trade Payables Turnover 11.47 9.41 10.98 11.86 14.54 16.87 17.99 18.02 Average Inventory Holding Period 0.51 0.93 0.92 0.71 0.60 0.54 0.53 0.55 Average Days to Collect Receivables 16.84 19.23 12.72 10.55 9.94 10.23 10.63 10.98 Average Days to Pay Payables 31.82 38.78 33.24 30.79 25.10 21.64 20.29 20.26 Operating Cycle 17.35 20.16 13.64 11.25 10.55 10.78 11.16 11.53 Cash Conversion (Trade) Cycle -14.47 -18.62 -19.60 -19.53 -14.55 -10.86 -9.13 -8.73 Panel D: Liquidity Ratios
Current Ratio 0.89 1.20 1.25 1.16 0.94 0.87 0.87 1.19 Quick Ratio 0.89 1.19 1.25 1.15 0.93 0.86 0.86 1.18 Cash Ratio 0.65 0.93 1.03 0.91 0.70 0.60 0.57 0.84 Defensive Interval 133.32 118.90 123.03 103.08 87.61 73.16 65.76 79.50 EBIT to Interest Expense 135.13 47.31 10.82 10.78 12.91 18.81 27.70 24.96 EBIT to Net Interest Expense -31.59 95.27 13.49 12.21 14.91 23.37 38.95 36.58 The ratios in Panel A and Panel C are calculated using average balance sheet accounts. *Pro-forma Exemptions: ROE, Total Asset Turnover
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Appendix 5 : DuPont and Advanced DuPont Analysis
Panel A: Standard DuPont Model 2014A 2015A 2016* 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε Net Profit Margin [A] 14.46% 15.00% 10.41% 11.74% 11.67% 11.66% 12.36% 11.18% Asset Turnover [B] 0.79 0.82 0.82 0.89 1.12 1.41 1.63 1.72 Equity Multiplier [C] 1.42 1.42 1.62 1.63 1.67 1.61 1.55 1.61 ROE [AxBxC] 16.13% 17.45% 13.78% 17.02% 21.76% 26.47% 31.23% 31.00%
Panel B: Advanced DuPont Model 2014A 2015A 2016* 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε RNOA [D=ExF] 20.51% 20.24% 14.61% 17.34% 21.29% 26.15% 31.92% 33.83% NOA Turnover [E] 1.47 1.33 1.30 1.35 1.70 2.15 2.52 2.94 NOPAT Margin [F] 13.96% 15.16% 11.24% 12.79% 12.51% 12.18% 12.68% 11.49% Net Borrowing Cost After Tax [G] 2.33% -1.46% 58.30% 22.07% 16.34% 20.54% 200.60% -15.10% Net Financial Leverage [H] -24.08% -12.85% 1.89% 6.88% 9.58% 5.76% 0.41% -5.77% ROE [D+(D-G)xH] 16.13% 17.45% 13.78% 17.02% 21.76% 26.47% 31.23% 31.00% *Pro-forma
Return on Net Operating Assets = Net Operating Profit After Tax / Net Operating Assets Net Operating Profit After Tax = Profit After Tax + (Financial Expense) x (1 - Marginal Tax Rate) Net Operating Assets = (Total Assets - Cash & Cash Equivalents) - (Total Liabilities - Short-term Debt - Long-term Debt) = Equity + Net Debt NOA Turnover =Wagers / Net Operating Assets NOPAT Margin = Net Operating Profit After Tax / Wagers Net Borrowing Cost After Tax = [(Financial Expense - Financial Income) x (1 - Marginal Tax Rate)] / Net Debt Net Financial Leverage = Net Debt / Equity
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Appendix 6 : Weighted Average Cost of Capital
2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Cost of equity
Risk Free Rate (1) 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% 0,240% Beta (2) 0,79 0,79 0,79 0,79 0,79 0,79 0,79 0,79 0,79 0,79 0,79 Equity Risk Premium (3) 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% 5,47% Adjusted CRP 12,63% 10,51% 9,12% 9,12% 7,72% 7,72% 7,72% 7,72% 7,72% 7,72% 7,72% Cost of equity 14,54% 12,87% 11,76% 11,76% 10,66% 10,66% 10,66% 10,66% 10,66% 10,66% 10,66% Cost of Debt
Cost of debt (pre-tax) 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% 6,42% Corporate tax 29% 29% 29% 29% 29% 29% 29% 29% 29% 29% 29% Cost of Debt 4,56% 4,56% 4,56% 4,56% 4,56% 4,56% 4,56% 4,56% 4,56% 4,56% 4,56%
Total Debt / 26,14% 27,06% 22,78% 18,34% 19,84% 19,84% 19,84% 19,84% 19,84% 19,84% 19,84% (Total Debt+Total Equity) WACC 11,93% 10,62% 10,12% 10,44% 9,45% 9,45% 9,45% 9,45% 9,45% 9,45% 9,45% Sources: (1) Trailing redemption yield of 10-year german bond. (2) Beta derived from monthly observations, since 2013. (3) Market risk premium = Real GDP Growth (EU) + Inflation (EU) + Dividend Yield (Euro Stoxx) + P/E Growth = 1.6% + 1.1% + 2.77% + 0% = 5.47%
Country Risk Premium Calculation Moody's Rating Caa2 Caa1 B3 B3 B2 B2 B2 B2 B2 B2 B2 Credit default spread(4) 10,40% 8,66% 7,51% 7,51% 6,36% 6,36% 6,36% 6,36% 6,36% 6,36% 6,36% Adjusted CRP 12,63% 10,51% 9,12% 9,12% 7,72% 7,72% 7,72% 7,72% 7,72% 7,72% 7,72%
Adj. Factor 1,214 (5) Std deviation in Equities 37,834 (6) Std deviation in Bonds 31,163
(4) The country's default spread - based on the country sovereign rating from Moody's, Damodaran Tables, Jan 2017. (5) Standard Deviation in Equities- Datastream, daily observations (6) Standard Deviation in Bonds- Datastream, daily observations
Cost of Equity = Risk Free Rate + Beta*(Mature market Risk Premium + Bond Default Spreads*(Std. Dev. in Equities / Std. Dev. in Bond Price))
Bond Default Spread – Damodaran Table Caa3 11.55% B1 5.20% Baa2 2.20% Aa3 0.70% Caa2 10.40% Ba3 4.16% Baa1 1.84% Aa2 0.57% Caa1 8.66% Ba2 3.47% A3 1.39% Aa1 0.46% B3 7.51% Ba1 2.89% A2 0.98% Aaa 0.00% B2 6.36% Baa3 2.54% A1 0.81%
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Appendix 7 : Discounted Cash Flows Valuation
(Data are in 000s) 2017Ε 2018Ε 2019Ε 2020Ε 2021Ε 2022E 2023E 2024E 2025E 2026E 2027E EBIT 270,557 324,102 363,340 401,628 361,958 354,817 355,173 359,672 372,131 354,416 395,768 EBIT Margin (%) 18.01% 17.62% 17.16% 17.86% 16.19% 16.00% 16.02% 16.14% 16.61% 16.23% 19.57% Less: Operating Taxes -72,037 -87,685 -100,860 -113,482 -102,098 -100,099 -100,297 -101,697 -105,405 -100,362 -112,448 Tax Rate (%) 26.63% 27.05% 27.76% 28.26% 28.21% 28.21% 28.24% 28.27% 28.32% 28.32% 28.41% NOPAT 198,520 236,417 262,479 288,147 259,860 254,718 254,876 257,975 266,726 254,054 283,320 NOPAT Margin (%) 13.22% 12.85% 12.39% 12.81% 11.62% 11.49% 11.49% 11.57% 11.91% 11.64% 14.01% Plus: Depr. & Amort. 56,644 83,662 108,485 101,178 137,678 137,678 137,678 137,678 129,761 121,844 42,525 Depr. & Amort./GGR(%) 3.77% 4.55% 5.12% 4.50% 6.16% 6.21% 6.21% 6.18% 5.79% 5.58% 2.10% Less: CAPEX 91,000 46,000 5,000 4,000 3,000 3,000 3,000 3,000 3,000 3,000 42,525 CAPEX/GGR (%) -6.06% -2.50% -0.24% -0.18% -0.13% 0.14% 0.14% 0.13% 0.13% 0.14% 2.10% Less: Increase in NWC 2,796 11,259 9,393 4,170 1,336 -1,379 -100 700 707 -852 100 NWC/GGR (%) -11.1% -8.45% -6.89% -6.31% -6.28% -6.28% -6.27% -6.27% -6.27% -6.39% -7.20% FCFF 161,368 262,820 356,571 381,154 393,201 390,774 389,654 391,952 392,780 373,750 283,220 WACC 12.78% 11.94% 10.62% 10.12% 10.44% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% Discount Factor 1.0000 0.8934 0.8076 0.7333 0.6640 0.6067 0.5543 0.5064 0.4627 0.4228 0.3863 Disc. FCFF 161,368 234,792 287,954 279,509 261,081 237,070 215,983 198,502 181,748 158,013 109,402
Perpetual Growth Rate 0% Disc FCFF (2017-2026) 2,216,020
Disc. Terminal Value 1,267,279 Target Price 10.73 Enterprise Value 3,483,299 Current Price 8.2 Less: Total Debt -365,000 Upside Potential 30.80%
Plus: Cash 293,717 Market Cap. 3,412,016 Shares Outst. 318,112,195
Appendix 8 : Residual Income Valuation
(All data are in 000s) 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E NOPAT 198,520 236,417 262,479 288,147 259,860 254,718 254,876 257,975 266,726 254,054 283,320 Equity+Loans 1,415,840 1,401,339 1,351,467 1,207,854 1,089,674 981,730 981,730 981,730 981,730 981,730 981,730 Residual Income 29,503 87,545 125,658 162,024 156,902 161,959 162,117 165,216 173,967 161,295 190,561 WACC 11.94% 10.62% 10.12% 10.44% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% Discount Factor 1.00 0.90 0.82 0.74 0.68 0.62 0.57 0.52 0.47 0.43 0.40 Disc. Residual Income 29,503 79,138 103,148 120,425 106,550 100,490 91,904 85,575 82,329 69,743 75,284
Perpetual Growth Rate 0%
Present Value (2017-2026) 868,805
Present Value (2026+) 872,065 Target Price 10.30 Enterprise Value 3,156,710 Current Price 8.2 Less: Total Debt -365,000 Upside Potential 25.6% Plus: Cash 293,717
Market Cap 3,085,427
Shares Outst. 318,112,195
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Appendix 9 : Relative Multiples Valuation
1) Metrics € million Country Market cap. 3Y EPS CAGR ROE Dividend Yield EBITDA margin Revenues(GGR) Company (27/12/2016) 2016-2019 2017 2018 2019 2016 2017 2016 2017 2016 2017
William Hill UK 2,548 13.72% 17% 17% 16% 4.08% 4.43% 25.00% 21.33% 1,597 1,699 Ladbrokes UK 2,274 29.80% 13% 16% 16% 2.64% 4.12% 13.63% 18.39% 1,273 2,447 Paddy Power Ireland 7,306 15.72% 28% 19% 9% 1.82% 2.25% 23.55% 27.23% 1,468 1,738 Betsson Sweden 10,695 -2.94% 25% 21% 21% 5.07% 5.35% 26.08% 27.33% 4,040 4,515 Rank Group UK 754 4.47% 16% 16% 16% 3.32% 3.73% 18.09% 16.83% 709 773 IGT UK 4,397 4.99% 10% 10% 15% 1.92% 2.47% 55.00% 35.58% 1,968 2,145
Median 0.09 16% 16% 16% 2.98% 3.93% 24.27% 24.28%
Average 0.11 20% 18% 18% 3.14% 3.72% 26.89% 24.45%
OPAP 2,759 0.13 15% 18% 24% 15.93% 9.90% 20.02% 21.79% 1,391 1,502
OPAP vs Median 41.2% -7.4% 13.1% 48.8% 435.0% 152.1% -17.5% -10.3%
OPAP vs Average 20.5% -24.3% 0.8% 32.5% 407.0% 165.8% -25.6% -10.9%
2) Multipliers P/E EV/EBITDA EV/GGR P/BV EV/EBIT
Company 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 William Hill 12.48 11.71 10.89 7.60 6.99 6.28 1.61 1.50 1.31 1.67 1.55 1.48 9.96 9.69 8.89 Ladbrokes 18.43 12.20 9.73 6.63 5.52 n/a 1.22 1.10 n/a 1.56 1.44 n/a 10.30 7.61 n/a Paddy 26.84 21.91 19.25 14.96 14.61 n/a 4.08 3.62 n/a 1.70 1.64 n/a 18.56 16.03 n/a Betsson 14.53 15.94 16.14 9.68 10.11 9.77 2.61 2.36 2.12 3.00 2.85 2.69 12.14 13.13 12.97 Rank 13.45 12.36 11.48 6.55 5.94 5.37 1.11 1.03 0.95 1.98 n/a n/a 10.36 9.31 8.28 IGT 12.36 11.50 10.70 8.06 2.13 n/a 2.83 0.74 n/a 1.47 1.36 1.73 12.10 3.82 n/a
Median 13.99 12.28 11.18 7.83 6.46 6.28 2.11 1.30 1.31 1.68 1.55 1.73 11.23 9.50 8.89 Average 16.35 14.27 13.03 8.91 7.55 7.14 2.24 1.73 1.46 1.90 1.77 1.97 12.24 9.93 10.05 OPAP 14.79 12.15 10.56 8.92 7.16 3.90 1.94 1.59 1.38 2.52 2.64 2.80 10.79 9.01 8.04 OPAP vs 5.7% -1.0% -5.5% 14.0% 10.8% -37.9% -7.9% 22.4% 4.9% 49.4% 70.9% 61.6% -3.9% -5.2% -9.6% Median OPAP vs -9.5% -14.8% -18.9% 0.1% -5.2% -45.3% -13.4% -8.0% -5.9% 32.6% 49.7% 42.2% -11.8% -9.3% -20.0% Average
Athens University of Economics and Business 18 Accounting & Finance Department CFA Research Challenge 2017
Appendix 10 : Organizational Structure
Appendix 11 : Geographical Distribution of Commercial Network
Appendix 12 : Games’ Participation to Wagers
LAIKO ETHNIKO SKRATS Other Other 2.43% 1.00% 6.82% 5.11% 5% PROPO-GOAL 0.01% PROPO Instants 0.13% and KINO Passives MONITOR 43.99% 11% GAMES 1.04%
STIHIMA Lotteries 31.35% Sports 52% Betting 32%
EXTRA 5 0.13% SUPER 3 PROTO LOTTO JOKER 0.31% 0.50% 0.87% 6.32%
Athens University of Economics and Business 19 Accounting & Finance Department CFA Research Challenge 2017
Appendix 13 : Social Responsibility
Health: In 2014, OPAP commenced the renovation of two Children’s Hospitals, “Aghia Sophia” and “Panagioti & Aglaias Kyriakou”. The main purpose of this project is the upgrade of Hospital’s Nursing Units and Outpatient clinics in conjunction with the creation of a pleasant therapeutic environment for the children. Within a year, two floors were completed and delivered. Since 2014, OPAP, as a Grand Sponsor of Athens Marathon, invites citizens to download the mobile application “Something Better” in order to support its social responsibility actions. Via this application, they were able to make virtual contributions, which have been converted into financial support. In 2016, more than 200,000 people used the application and approximately 3.3 million euros were collected –almost 5 times more than 2015. OPAP also supports Harokopio University’s “Evaluation of Students’ Physique, Eating Habits and Physical Activity” program, which assesses the health parameters, such as dietary habits, physical activity and fitness, of the student population in all educational levels in Greece since 2012.
Sports: In 2014, OPAP initiated the “Sports Academies” program, which supports 125 amateur football academies throughout Greece and addresses to more than 10,000 young athletes. This program aims to bring the children closer to sports by providing the academies with an integrated educational “package”. OPAP is also the Grand Sponsor of the Paralympic Committee since 2011.
Employment: OPAP designs an integrated social program, which aims to provide support to developing companies.
Sensitive Social Groups & Community Support: Since 2014, OPAP supports the “Together for Children” association through the initiative “Wishing Ornaments”. In further detail, presents are offered to children during Christmas and the facilities under the association are further enhanced through the funding of OPAP. In 2015, the company completed the construction of a modern playground for the “Smile of the Child” organization and contributed in infrastructure development activities to “SOS Children Villages”. Since 2015, OPAP supports "Music Loves Autism", an Onassis Cultural Centre's initiative, which helps children with autism to improve their sensory capacities.
Environmental Impact: In order to ensure that the environmental impact from its operations is mitigated, OPAP developed a certified Environmental Management System according to ISO14001:2004, specifically for OPAP S.A. and OPAP Services S.A.
Protecting the players: OPAP supports responsible gaming by being subject to the Hellenic Game Commission’s regulations and by carrying out an awareness campaign for players.
Employees: OPAP provides its employees with a pleasant work environment and aims to further development of their skills and educational background. In order to achieve these objectives, the company takes into consideration the employees’ proposals, provides training programs and offers additional benefits.
Athens University of Economics and Business 20 Accounting & Finance Department CFA Research Challenge 2017
Appendix 14 : Porter’s Five Forces
Intensity of competitive rivalry (2): Casinos and online betting platforms consist the most Rivarly important competitors of OPAP These competitors hold the 22% of the gaming market share 2 while OPAP SA and its subsidiaries hold the rest New entrants Substitutes 78%.Potential expansion is limited due to the existing 1 3 regulatory framework Currently, the illegal gaming market can be perceived as the 1 most important competitor, taking into consideration that its 2 value is estimated around € 1 billion in a yearly basis. However, the investment of OPAP SA in VLTs will minimize Customers Suppliers the market share of casinos and significantly reduce the revenues of the illegal market 1 Low 2 Low to Medium Threat of substitute products (3): Average: 1.8 3 Medium The vast majority of OPAP SA products are unique in the Greek 4 Medium to High gaming market. Casinos offer slightly different games which are 5 High more expensive and more difficult to access. Exceptions are the online betting platforms which offer similar products to those of OPAP SA. OPAP SA and its subsidiaries have established a highly diversified product portfolio. However, it is possible that a small scale competitive interaction takes place between some of these products.
Bargaining Power of Suppliers (1) OPAP SA does not rely heavily on specific suppliers due to the nature of its business activity. So, the bargaining power of the suppliers does not pose a threat for the company.
Bargaining Power of Customers (2) The main characteristics of the customer base are the high population and the small per capita spending for betting games (€194). Consequently, the bargaining power of the customers is not significant. The agents who function as intermediaries between OPAP SA and the final customer have sometimes bargaining power especially when it comes to bad debt.
Threat of new entrants (1) The regulatory framework is not flexible The market capitalization of OPAP SA is €2.8 billion, making it impossible for potential medium sized companies to set up business in this segment There is an already established commercial network of 4791 POS which comes first among other Greek companies. It is extremely difficult for new entrants to acquire and maintain a network like this OPAP SA has a strong brand name closely linked with the Corporate Social Responsibility (CSR) and the contribution to the Greek society
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Appendix 15 : SWOT Analysis
Strengths OPAP S.A. is currently the leader in the Greek Gaming Market, holding a 73% market share, which mostly derives Weaknesses from owning exclusive licenses. Moreover, its commercial Strengths • Online sport betting network is expanded throughout Greece and Cyprus having • Market leader competition an aggregate total of 4,739 POS (as of 31.01.2015). This • Widest commercial •Lack of geographical classifies OPAP’s retail network as the largest and most network in Greece diversification widespread in Greece, exceeding the number of the banks • Strong cash flows • Games' and post offices combined. The strong cash flows that the • Game diversification company produces, ensures the prospective stability and "cannibalization" profitability while its generous dividend policy remains intact if not ascending at times. The diversification of games is wide enough to fulfil the most demanding Opportunities Threats costumers’ expectations as OPAP offers 14 different games, save the ongoing VLT project. • VLTs market • Macroeconomic • Virtual sports games Environment
• Illegal Betting • Regulatory Weaknesses Markets Framework OPAP has to face intense competition in the online sport • Customer base betting market by the 24 online platforms operating under enhancement transitional regime, despite owning a strong brand name and using modern user friendly interfaces. Another structural weakness is the lack of geographical diversification, as OPAP operates exclusively in Greece and only 5% of its revenues derive from Cyprus. Furthermore, OPAP has to cope with game “cannibalization”, as newly added games often generate profit in the expense of its older ones.
Opportunities The upcoming and highly anticipated VLTs are expected to cause significant impact in the market and finally lead in a market transformation by almost doubling the company’s GGR. Concerning the farfetched opportunities, Virtual sports will definitely be high enough in the target list of OPAP, as it will enable the company to step into the broader entertainment industry. With the actions mentioned above there is definitely room for growth for OPAP, especially by acquiring a share from the unexploited illegal betting markets. However, the biggest challenge will be the evolution of the existing betting agencies in order to further enhance the experiential impact on its customers.
Threats OPAP’s intangible assets consist mostly from exclusive operating licenses with an aggregate value exceeding € 1 billion. In other words, OPAP has a huge dependence on the existing regulatory framework and a potential market deregulation, as the one that froze the VLT project in 2015, could lead to significant market share loss. The biggest threat, however, arises from the macroeconomic environment, as OPAP’s wagers and GGR depend highly on the GDP.
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Appendix 16 : P.E.S.T.L.E. Analysis
P E S T L E Political Economic Social Cultural Technological Legal Environmental
Political Instability Economic Betting Habits New games Lottery monopoly OPAP follows the High Taxation Depression Increase of Alternatives Responsible ISO 14001:2004 Capital controls High rates of Internet users New means of gaming unemployment Demographics payment
Starting with the political factors, political instability in the years of the economic crisis has considerably raised the level of uncertainty. On the other hand, Greece is a member Debt - GDP (€ billion)
600 state of the EU and has established strategic alliances with international organizations 500 such as NATO, IMF, OECD etc. which counterbalances political uncertainty. A structural problem in the political environment is the extremely frequent changes in laws 400 and tax rates. Concerning OPAP, the Greek State has levied a special tax calculated as 300 35% of the Gross Gaming Revenue (GGR) which is considerably higher compared to the 200 100
European average. Last but not least, capital controls have been imposed to minimize the Δισεκατομμύρια
2008 2009 2010 2011 2012 2013 2014 2015 instability in the national banking system after the political uncertainty created by the 0 2007 recently elected government. Proceeding to the economic environment, Greece suffers from deep recession for more than half a decade pushing several companies to stop their operational activity. Debt GDP Moreover, unemployment rate has skyrocketed, restricting purchasing power to a Source: Eurostat historical low together with the minimization of the disposable income. On this context, 1 the Greek Gaming Market has gone through an aggregate loss of 38% since 2008 . Despite the adverse recession period and the market decline, people have preserved their Wagers in the GGM (€ billion) consuming habits towards betting. In particular, Greeks seem to be very keen on betting 10 games, as the Greek Gaming Market consists 0.98% of the GDP, outperforming most of 8 the European peers. Internet betting platforms seem to be more attracting to young age 6 groups, while the older age groups prefer the traditional games. However, there is an 4 overall increase of internet users. Lastly, the minimization of the gender inequality has 2 eliminated the prevalent belief, that lucky games and betting is a men’s case. 0
Technological advance during the last decade has fundamentally changed the
2009 2007 2008 2010 2011 2012 2013 2014 2015 communications, transactions and the means of entertainment. As a result, not only there 2006 are new online and digital games available but the classic ones have been revolutionized OPAP Casinos as well. OPAP follows tightly the technological transformation, by adding innovative State Lotteries Horse Races games to its portfolio and redesigning the already existing ones to match with the Source: HGC Annual 2015 Report expectations of the 21st century. Environmental problems and the climate change do not affect the gaming industry significantly and there is no specific regulatory framework for the companies operating in Internet Penetration Rate the segment. Nevertheless, OPAP follows the ISO 14001:2004 concerning environmental 85% protection. Moreover, the company has reduced energy consumption and has extended recycling, especially paper. 55% 69% The legal framework issued by the Hellenic Gaming Commission makes it quite difficult 25%
for competitors to enter the market, as most of the licenses are exclusive. The current
2008 2009 2010 2011 2012 2013 2014 2015 2016 situation is very helpful for OPAP and enables it to operate without any significant threat 2007 from competitors. On the other hand, the framework obliges OPAP to abide by specific European Union Greece requirements in terms of game specifications which leads to increased operational costs Source: Eurostat and reduced efficiency.
1 Hellenic Gaming Commission Data
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Appendix 17 : VLT regulation
In 2011, OPAP acquired an exclusive license for Video Lottery Terminals (VLTs) operation, paying €560 million. However, the investment did not proceed as expected due to the deterioration of the regulating framework. More specifically, OPAP supported that the new VLT regulation introduced in 2015 is about to reduce dramatically the efficiency of the investment project. As a result, the company decided to postpone the VLT project and filed a request for arbitration with the London Court of International Arbitration for damages in excess of €1 billion. In the 2nd of November, the Hellenic Gaming Commission decided to change once more the regulatory framework concerning VLTs, in order to enable OPAP to initiate the project. The company announced promptly, that “all of the appropriate conditions are now in place to allow OPAP to restart plans for the operation of VLT products in Greece”.
Regulation2 2015, 158/2 2016, 225/2 Daily Loss €80 Set by player Session Loss €20 Set by player 10:00-24:00 10:00-02:00 Operating Hours (10:00-02:00 Fridays (10:00-04:00 Fridays Saturdays and holidays) Saturdays and holidays) Maximum Jackpot 20,000 50,000 Minimum Distance 200m No limit between VLT venues
Obviously, the new regulation is less strict for OPAP. However, there are still limitations in order to protect players and enhance responsible gaming:
Only adults over 21 years old are allowed to enter and use the VLTs The whole VLTs project will work online and the Hellenic Gaming Commission will have full access There must be at least 3m2 of space per VLT Limitations concerning proximity to schools Minimum payout ratio is 80%
The 21st of December 2016, European Commission asked the Hellenic Gaming Commission to freeze the VLT project once more because progress in terms of player of protection has been reverted with the introduction of the new regulation. On the other hand, Hellenic Gaming Commission insists that the current regulatory framework, concerning VLTs, is fully aligned with the European standards in terms of responsible gaming. We have conducted research regarding the European Commission Recommendation3 and our verdict is that the VLT regulation complies with the European Standards for responsible gaming. Moreover, we have compared the VLT regulation with the major principles of responsible gaming publicized by the European Gaming and Betting Association4: Age restriction to ensure that minors do not access gambling websites Information, educational initiatives and warnings for all customers Pre- commitment on monetary limits Reality checks which allow players to be in control of their activities The ability to (permanently) self-exclude or choose ‘cooling off’ periods Direct communication with players Providing a clear link to the website of at least one organization qualified to assist problem gamers Not providing credit to customers
2Decision 225/2/25.10.2016, publicized in the Official Government Gazette, No3528, 2nd issue, 01/11/2016 3 Commission Recommendation of 14 July 2014, on principles for the protection of consumers and players of online gambling services and for the prevention of minors from gambling online (2014/478/EU), Official Journal of the European Union, 19/7/14 4 www.egba.eu/media/FACTSHEET_RESPONSIBLEGAMING1.pdf
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Appendix 18 : Exclusive Licenses
Title Description Games Expiry Date Cost OPAP was granted in 2011 the right to operate 35.000 video lottery terminals in Greece. Since then, the project has been €560 35.000 VLTs 2027 VLTs suspended until the beginning of 2017, due to changes in the million regulatory framework. In 2013 OPAP renewed through Hellenic Lotteries S.A. its license concerning Instant & Passives. OPAP SA controls Instants 67% of Hellenic Lotteries while the rest is equally distributed €190 Scratch, Ethniko, 2035 between Scientific Games and Intralot. The joint venture million + and Laiko consists of companies leaders in the Lottery Tickets segment 30% of the Passives GGR and the exclusivity of the license provides significant potential for expansion. OPAP holds an exclusive license for numerical lotteries and Stihima, Joker, Numerical 2030 €375 sport betting games that expires in 2020. In 2011, signed the Lotto, Propo, Online million + Lotteries expansion of the license till 2030. As a result OPAP has the Proto, Super 3, Numerical 5% of the and Sports right to organize, conduct and manage the existing 13 games, Extra 5, Propo- Lotteries: 2030 GGR (from Online Sports Betting along with operating new games, permitted by law, by any Goal, Kino, 2020 to mean possible. Monitor Games Betting: 2020 2030) OPAP has acquired in 2016 the exclusive right to organize Land Based and €40 Horse and conduct Horse races in Greece and organize mutual 2035 Online Horse (Online: 2020) million betting on them. The license also includes organizing and Races Races conducting mutual betting on horse races online.
Appendix 19 : Product Portfolio based on GGR
(The size of the circles represents the participation rate on the GGR)
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Appendix 20 : VLT Assumptions
1)VLT number 31/12/2017 31/12/2018 31/12/2019 31/12/20203 Actual1 Weighted2 Actual1 Weighted2 Actual1 Weighted2 Actual1 Weighted2 Operated by OPAP 10,536 4,326 16,500 15,008 16,500 16,500 16,500 16,500 Sub-contracted 0 0 8,844 3,685 18,500 13,266 18,500 18,500 Total 10,536 4,326 25,344 18,693 35,000 29,766 35,000 35,000 1We have assumed that the introduction of VLTs will be linear. 2Weighted VLTs in year X1 = (Actual VLTs in December X0) + (Actual VLTs introduced in January X1 * (11/12)) + (Actual VLTs introduced in February X1 * (10/12)) + ……… + (Actual VLTs introduced in December X1 * (1/12)) 32020 onwards, Actual VLTs = Weighted VLTs
2) Wagers-GGR 2017 2018 2019 2020 2021 Wagers/VLT/day 640 600 567 523 523 1 Wagers 1,010,554 4,093,840 6,156,601 6,682,308 6,682,308 Payout Ratio 90.00% 89.00% 88.00% 87.00% 87.00% 2 Payout to winners 909,498 3,643,518 5,417,809 5,813,608 5,813,608 3 GGR 101,055 450,322 738,792 868,700 868,700 1Wagers = (Wagers/VLT/day) * (Weighted VLTs) * (365) 2Payout to winners = Wagers * Payout Ratio 3GGR = Wagers – Payout to winners
3) License Amortization 2017 2018 2019 2020 ……. 2026 1 Amortization 8,135 35,154 55,976 65,819 ….... 65,819 1Value of the license = (X * Weighted VLTs in 2017/35,000) + (X * Weighted VLTs in 2018/35,000) + …… + (X * Weighted VLTs in 2026/35,000)
4)Fees 2017 2018 2019 2020 2021
Agents' Commission1 25,264 90,388 102,383 102,383 102,383 Sub-contractors' fee2 0 26,631 98,779 137,751 137,751 Vendors' Commission3 12,632 56,290 92,349 108,588 108,588 1Agents’ Commission = GGR of VLTs operated through the network of OPAP * 25% 2Sub-contractors’ fee= GGR of the sub-contracted VLTs * 30% 3Vendors’ Commission = GGR (of the entire VLTs) * 12.5%
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Appendix 21 : Wagers Assumptions
Lotteries Sports Betting Instants and Passives
Market Market Factor GDP1 Total GDP1 Seasonality Competition Total GDP1 Total Transformation Transformation 2016 0.13% 0.13% 0.13% 0.13% 0.13% 0.13%
2017 5.89% -5.00% 0.89% 5.89% -2.00% -5.00% -1.11% 5.89% -2.00% 3.89% 2018 6.53% -10.00% -3.47% 6.53% -5.00% 1.53% 6.53% -2.00% 4.53%
2019 5.96% -9.00% -3.04% 5.96% -5.00% 0.96% 5.96% -2.00% 3.96%
2020 5.21% -5.00% 0.21% 5.21% 2.00% -9.00% -1.79% 5.21% -2.00% 3.21% 2021 3.79% -2.00% 1.79% 3.79% -2.00% -9.00% -7.21% 3.79% -2.00% 1.79% 2022 1.00% -1.00% 0.00% 1.00% -6.00% -5.00% 1.00% -1.00% 0.00%
2023 1.00% 1.00% 1.00% -3.00% -2.00% 1.00% -1.00% 0.00%
2024 1.00% 1.00% 1.00% 0.00% 1.00% 1.00% -1.00% 0.00%
2025 1.00% 1.00% 1.00% 0.00% 1.00% 1.00% -1.00% 0.00%
2026 1.00% 1.00% 1.00% 0.00% 1.00% 1.00% -35.00% -34.00%
2027 1.00% 1.00% 1.00% 0.00% 1.00% 1.00% 1.00%
In 2017, the introduction of In 2017, we have calculated a 2% reduction in VLTs, virtual reality games and VLTs is expected to minimize wagers due to the European Championship other intuitive betting products are wagers from lotteries. that took place in 2016 and had created a expected to slightly affect the Especially the VLTs that will temporary positive impact to the financial instants and passives market. be installed in the already results. Similar seasonality adjustments are Technologically advanced existing agencies are expected expected for 2020 and 2021 due to the products will grab the customers’ to obtain a significant European Championship of 2020. interest and demand for traditional percentage of the lottery Competition is already pushing down OPAP batting games will be reduced. revenues. We assume that the revenues from online sports betting. We However the overall result will be revenue cannibalization will be expect competition in the future to be more either positive or neutral due to the gradually reduced until 2022. intense, as internet penetration rate will be GDP push. In 2025, the exclusive The exclusive license for increased and online market will acquire a license is about to expire and we lotteries has been extended up bigger market share. Moreover, the online asuume a significant market share until 2030 and consequently we betting rivals operate under a transitional loss for OPAP, as it is highly do not expect any kind of framework which is expected to become possible more rivals to get into the market deregulation or permanent by the expiration of the online market. competitive rivalry. betting license of OPAP in 2020.
1 GDP: running a linear regression between the annual change in wagers of OPAP (%) and the annual changes in real GDP (%), we noticed that there is a positive correlation. So, we used real GDP projections from the World Economic Outlook Database, of IMF in order to calculate the impact on the amounts wagered in the future.
Historic real GDP Data
2007 2008 2009 2010 2011 2012 2013 2014 2015 3,27% -0,34% -4,30% -5,48% -9,13% -7,30% -3,20% 0,65% 0,23%
Projected real GDP Data
2016E 2017E 2018E 2019E 2020E 2021E
0,06% 2,77% 3,07% 2,80% 2,45% 1,78%
Source: www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx
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Appendix 22 : Corporate Governance Effectiveness Board’s Composition OPAP’s policy is to offer equal opportunities, which is demonstrated by the diversity amongst the Board. Decision Composition making process is taking place through a 5 The Annual General Meeting4 3 Information and Support male-based Board, whereas 75% of BoD 3 3 members are not Greek and 20.58% of the 1 Relations with shareholders3.5 3.5Evaluation Top 34 managers are female. Regarding the -1 Executives, the 41.6% are female and the Remuneration Committee and 58.33% are non-Greek nationals. 3.5 3.5Financial and Business Reporting Director's Report Information and Support Audit Committee and Auditors'3 Risk Management and Internal 4 Every member of the Board has access to Report Control reports regarding upcoming meeting agendas; even Directors who were absent can review and raise issues on the relevant briefing papers. The Company Secretary, who ensures that the correct Board procedures are followed and proper records are maintained, is also accessible to each Director and in accordance to a specific procedure, members are able to take independent advice at company’s expense in furtherance of their duties Evaluation Listed companies have to undertake a predefined evaluation process at least once every two years. During 2015, OPAP’s annual evaluation was performed by the Board, internally. However, an external evaluation is under consideration to be performed next year. Each Director’s performance is undertaken by the Chairman through one-to-one discussions. The performance of the Executive Directors of the Board is also reviewed by the Remuneration Committee. Accountability and Remuneration Financial and business reporting The Board is responsible for the integrity of OPAP’s consolidated and the Company’s financial statements. Therefore, there is a series of accounting and treasury policies, practices and controls, that are designed to ensure the identification of changes in accounting standards, which constitutes the Finance function. Risk management and Internal Control The Board has established a risk and control structure designed to manage the achievement of OPAP’s objectives, which is surrounded by the principles of Business Conduct, included in the Internal Rules and Regulations, and a range of ISO policies and procedures on corporate, social and environmental responsibility. Audit Committee and Auditors’ Report The Audit Committee recognizes that external auditors must be independent, with sufficient knowledge of the Company's operations and to cooperate effectively with the Audit Committee under the Annual Audit Plan. The Company’s independent auditors is KPMG Director’s remuneration report and Remuneration Committee OPAP’s remuneration philosophy is based on simplicity, shareholder alignment and performance-based remuneration. There is also the Remuneration Committee which is chaired by Pavel Saroch and comprises three non-executive and independent members. In particular, bonus schemes, that build incentives via specific KPIs, exist as well as qualitative criteria such as managerial skills, training & development of the working teams, project deliveries, external communication. Relation with Shareholders Relations The Executive Directors and the Director of Investor Relations meet with institutional Shareholders and financial analysts to discuss matters relating to the Company’s business strategy and performance, develop strategies in order to attract investors, based on OPAP’s strategy of shareholder value enhancement and analyze Market feedback to Management The Annual General Meeting Shareholders are able to ask questions of the Chairman, the Chairs of Board Committees and the Board as a unit. The results of the poll are released to the Stock Exchange and published on the website shortly after the AGM.
Major Codes’ Provisions 1) non-executive directors with diversified characteristics 2) two non-executive Vice Chairmen 3) the Audit Committee Chairman is an independent non-executive member 4) Special declaration regarding Executive BoD member’s position as non-executive member in another non-related corporation 5) Remuneration Committee constituted from the two Vice-Chairmen of the Board along with other independent and non-executive members
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Appendix 23 : Beneish M Score
Index Name Index Formula
DSRI Days Sales in Receivables Index (Net Receivablest / Wagerst) / (Net Receivablest-1 / Wagerst-1) 1.052
GMI Gross Margin Index [(Wagerst-1 – Payoutt-1) / Wagerst-1] / [(Wagerst – Payoutt ) / Wagerst ] 1.000
AQI Asset Quality Index [1 - (Current Assetst + PP&Et) / Total Assetst] / [1 - ((Current Assetst-1 + PP&Et-1) / Total Assetst-1)] 0.985
SGI Sales Growth Index Wagerst / Wagerst-1 0.994
DEPI Depreciation Index [(Depreciationt-1/ (PP&Et-1 + Depreciationt-1)] / [(Depreciationt / (PP&Et + Depreciationt)] 0.962
SGAI SGA Expenses Index (SG&A Expenset / Wagerst) / (SG&A Expenset-1 / Wagerst-1) 1.025 [(Current Liabilities + Total Long Term Debt ) / Total Assets ] / [(Current Liabilities + Total Long LVGI Leverage Index t t t t-1 1.369 Term Debtt-1) / Total Assetst-1]
TATA Total Accruals to Total Assets (Income from Continuing Operationst - Cash Flows from Operationst) / Total Assetst 0.046
5 variable equation M = -6.065+(0.823*DSRI)+(0.906*GMI)+(0.593*AQI)+(0.717*SGI)+(0.107*DEPI) 8 variable equation M = -4.84+(0.920*DSRI)+(0.528*GMI)+(0.404*AQI)+(0.892*SGI)+(0.115*DEPI)-(0.172*SGAI)+(4.679*TATA)-(0.327*LVGI)
M-score Result
5 variable equation -2.89 <-2.22, Non Manipulator 8 variable equation -2.36 <-2.22, Non Manipulator
See Beneish, D.M., Lee, M.C. and Nichols, D.C. (2013) Earnings Manipulation and Expected Returns, Financial Analysts Journals, Vol. 67, n. 2.
Appendix 24 : Altman’s Z Score for non-manufacturing companies
Variable Value X1 = (Current Assets − Current Liabilities) / Total Assets 0.05 X2 = Retained Earnings / Total Assets 0.52 X3 = Earnings Before Interest and Taxes / Total Assets 0.13 X4 = Book Value of Equity / Total Liabilities 1.64 We have calculated the Altman’s Z score using the formula for non- Z = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 = 4.64 manufacturing companies Z > 2.6 -“Safe” Zone 1.1 < Z < 2.6 -“Grey” Zone Z < 1.1 -“Distress” Zone Result: Safe
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Appendix 25 : Monte Carlo Simulation
We have implemented Monte Carlo Simulation on our DCF model in order to examine the volatility of the target price to our major assumptions. We have picked 5 fundamental DCF variables related to our assumptions and we have matched them with specific risks. For each one, we have defined the statistical distribution, the mean and the standard deviation. Regarding distribution we have opted for normal with only exception the Country Risk Premium (CRP). We have used a PERT distribution which is defined using 3 inputs: minimum, maximum and most likely. In our DCF model we have used the Damodaran tables in order to match Projected Credit Ratings with CRP and as a result minimum and maximum values are defined by the best and the worst credit rating respectively. So, we have created 2 different extreme scenarios regarding the credit rating of Greece (negative and positive scenario) in order to examine the volatility of the CRP. Wherever we have applied normal distribution we have set our DCF base values as mean. 1) Assumptions
Risk Category Variable Distribution Statistical Inputs Min:5.05% (ER1)Macroeconomic Country Risk PERT Max: 14.02% Risk Premium(CRP)-% Most likely:[7.72%,12.63] Lotteries’ Normal Mean: [-10%,-1%] (OR1)VLT Investment Cannibalization-% Distribution Std. Dev.: 2% Risk Normal Mean:[€418,€640] Wager/VLT/day-€ Distribution Std. Dev.: €200 Market Share Loss- Normal Mean: -35% (RR1)Regulatory % Distribution Std. Dev.: 20% Framework Risk Perpetual Growth Normal Mean: 0%
Rate-% Distribution Std. Dev.: 1% Source: Team Estimates
2) Results
Statistics Minimum 6.72 Maximum 16.17 Mean 10.21 Std Dev 1.12 Variance 1.2582506 Skewness 0.5491089 Kurtosis 3.7173377 Median 10.11 Mode 10.02 Left X 8.54 Left P 5% Right X 12.22 Right P 95% Diff X 3.68 Diff P 90%
Percentile 5% 8.54 10% 8.87 25% 9.44 50% 10.11 75% 10.87 90% 11.67 95% 12.22 All the above results have been calculated by performing 10,000 iterations with @Risk Software.
Athens University of Economics and Business 30 Accounting & Finance Department Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society Greece, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
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