Online Expansion And Product Refresh Are Expected To Support Long Term Earnings Quality

Catalysts

About Organization of Football Prognostics

Organization of Football Prognostics operates regulated gaming and betting activities, combining retail and online platforms across sports betting, lotteries and gaming machines.

What are the underlying business or industry changes driving this perspective?

• Ongoing shift of players toward online sports betting and iCasino, supported by OPAP's dual brand strategy and exclusive digital content, should sustain mid to high single digit online growth and lift group revenue and earnings quality over time.
• Product innovation in VLTs and Scratch, including new machines, enhanced in store experiences and higher value scratch ticket categories, is rekindling engagement in these verticals and can support higher GGR and resilient EBITDA margins.
• Participation in the tender for the Greek state lotteries license provides optional upside from an expanded concession footprint, which could add a recurring, high cash conversion revenue stream and support stable dividend capacity.
• Disciplined commercial initiatives concentrated in key periods such as the fourth quarter, together with a confirmed EBITDA margin target of 35%, indicate operating leverage that can convert modest top line growth into outsized earnings expansion.
• Industry consolidation dynamics, including the proposed business combination with Allwyn, may unlock cost synergies, enhance digital capabilities and scale advantages, supporting structurally higher net margins and long term earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Organization of Football Prognostics's revenue will grow by 16.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.9% today to 21.0% in 3 years time.
• Analysts expect earnings to reach €549.4 million (and earnings per share of €1.56) by about December 2028, up from €507.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €609.1 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, up from 12.9x today. This future PE is lower than the current PE for the GB Hospitality industry at 21.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The ongoing structural shift toward online betting and iCasino, where management targets mid to high single digit sustainable growth, could lead to faster than expected digital revenue expansion and a rerating of the stock as investors price in higher long term earnings growth and improved revenue mix.
• Successful product innovation and commercial initiatives in VLTs and Scratch, such as higher value Scratch ticket categories and refreshed in store experiences, may sustain the recent acceleration in these verticals beyond current expectations, lifting gross gaming revenue and supporting higher EBITDA and net margins.
• If OPAP secures the Greek state lotteries concession under favorable terms, the addition of a recurring high cash conversion revenue stream could structurally increase cash flows, support a more attractive dividend profile and drive earnings growth that justifies a higher valuation multiple.
• Execution of the dual brand online strategy, together with the launch of exclusive iCasino content and continued strong performance from Stoiximan, could consolidate OPAP's competitive position in a growing online market, improving long term revenue visibility and potentially expanding net margins.
• Realization of cost and scale synergies from the proposed business combination with Allwyn, combined with management's confidence in maintaining a 35 percent EBITDA margin, may result in structurally higher profitability and earnings growth than currently assumed, supporting a higher sustainable share price level.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €19.75 for Organization of Football Prognostics based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €23.5, and the most bearish reporting a price target of just €15.7.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €2.6 billion, earnings will come to €549.4 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of €18.2, the analyst price target of €19.75 is 7.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.