OPAP S.A. (OPAP.AT), the Greek lottery and sports betting operator, has reported a strong start to the year 2024, with a particularly notable performance in its online segment and a successful revamp of its draw-based games portfolio. During the first quarter earnings call, CEO Jan Karas showcased the company's 25% growth in the online market, outpacing the industry average of 9-10%.
The CFO, Pavel Mucha, indicated that while marketing expenses are expected to rise in the second quarter due to the Euro sporting event, they are projected to decline in the latter half of the year. Despite inflationary pressures, these have not significantly impacted operating expenses. The leadership remains confident in achieving the company's 2024 outlook.
Key Takeaways
- OPAP S.A. experienced substantial growth in its online segment, with a 25% increase, surpassing the market's growth rate.
- The company is preparing for increased marketing expenses in Q2 aligned with the Euro event but anticipates lower expenses in Q3 and Q4.
- Inflationary pressures were noted but are not currently a major concern for operating costs.
- The iLottery vertical showed positive growth, contributing to the company's strong performance.
- CEO Jan Karas and CFO Pavel Mucha expressed confidence in meeting the full-year 2024 guidance.
Company Outlook
- The company has had a positive start to 2024 and is confident in delivering its full-year guidance.
- Expectations for low single-digit growth in royalties are in place, with a solid performance already noted in Q1.
- Major sporting events, particularly the Euro event, are anticipated to drive increased gaming activity and contribute positively to the company's financials.
Bearish Highlights
- There is uncertainty surrounding the impact of the Euro event, although expectations remain positive.
- Inflationary pressures have been acknowledged, suggesting potential future impacts on operating costs if the trend continues.
Bullish Highlights
- The company's online segment and iLottery vertical are experiencing robust growth.
- Plans to revamp the scratch card category and ongoing investments in retail and online experiences are expected to drive future growth.
- The company's performance in Q1 aligns with expectations, setting a confident tone for the remainder of the year.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- Questions addressed during the call included topics on personnel expenses, share buybacks, Q2 trading, license extensions, and betting performance.
- The company provided reassurances and details regarding each of the queried topics, reinforcing their overall positive outlook for 2024.
In summary, OPAP S.A. has had a strong performance in the first quarter of 2024, with significant growth in its online operations and a positive outlook for the upcoming Euro event. The company's leadership is confident in meeting the year's targets and continues to invest in enhancing both the retail and online customer experience. Despite some inflationary concerns, the financial health of OPAP S.A. appears robust as it looks forward to capitalizing on the major sporting events of the summer.
InvestingPro Insights
In light of OPAP S.A.'s strong start to 2024, it's worth noting the performance of a comparable company in the gaming and betting industry. GOFPY, a peer in the sector, offers some interesting contrasts and parallels that could provide additional context to OPAP's results and strategies.
InvestingPro Tips for GOFPY highlight a high shareholder yield and impressive gross profit margins, which are indicative of the company's ability to generate and return value to its shareholders. Analysts also anticipate sales growth in the current year, which aligns with the positive outlook presented by OPAP S.A. for their own operations. Additionally, GOFPY has been acknowledged for maintaining dividend payments for 24 consecutive years, a testament to its financial stability and commitment to shareholders.
The InvestingPro Data metrics that stand out for GOFPY include a P/E Ratio (Adjusted) for the last twelve months as of Q1 2024 at 13.17, suggesting a reasonable valuation relative to earnings. Gross Profit Margin for the same period stands at a robust 59.54%, underlining the company's efficiency in maintaining profitability. Lastly, the Dividend Yield as of May 2024 is notably high at 19.3%, which could be of interest to investors seeking income-generating stocks.
Investors interested in the gaming and betting sector may find value in comparing these metrics and InvestingPro Tips with OPAP S.A.'s performance. For additional insights into GOFPY and to unlock more tips, visit https://www.investing.com/pro/GOFPY. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 additional InvestingPro Tips available for GOFPY, which could further inform investment decisions in this industry.
Full transcript - Greek Org of Football Prognostics (GOFPY) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the OPAP S.A. conference call and live webcast question-and-answer session to discuss the first quarter 2024 financial results. Please note, a video presentation has been distributed and is also available on the OPAP Investor Relations website. All participants will be in listen-only mode and the conference is being recorded. At this time, I would like to turn the conference over to Mr. Jan Karas, CEO of OPAP S.A. Mr. Karas, you may now proceed.
Jan Karas: Thank you very much, Constantino. Good evening or good morning to everyone and welcome to our regular Q1 2024 results conference call. I'm pleased with the first quarter's performance, which is broadly in line with our expectations. In more detail, online continued growing and maintained significant GGR contribution, while retail solidified its position further. We are excited with the progress being made on our draw base games portfolio revamp as initial results are evidencing a solid increase in GGR attributed mostly to Eurojackpot launch, while new lotto and new Tzoker have been welcomed by the players, likewise. So, these developments, together with the elevated gaming appetite resulting from the upcoming major sporting events in summer, make us confident on the delivery of our 2024 outlook. Hopefully, you have reviewed and enjoyed the results recorded video we share with you earlier today, so we'll jump directly to our Q&A session. Constantino, over to you,
Operator: The first question comes from the line of Draziotis Stamatios with Eurobank Equities. Please go ahead.
Draziotis Stamatios: Yes, hello, Jan. Thank you very much for taking my questions. Just a couple of questions if I may, please. Firstly, on expenses. Well, you do mention in your press release that there has been a front-loading of marketing spending owing to product launches and games revamp. Could you maybe help us gauge the phasing of marketing for the remainder of the year and where you think full-year marketing expenses are likely to land year-on-year, please. And related to that, I guess is the other cost categories, if you could tell us what sort of main inflation you've been facing or expect to face, and maybe if you've identified any opportunities to offset these inflationary pressures. So, that's the first question on expenses. And secondly, second question is actually on online. I'm just wondering, because you seem to have grown digital revenues quite significantly this quarter, 15%, which compares with about 9% for the online market at least based on the data of the gambling commission. And on its turn, this would indicate share gains. I'm just wondering, based on your data, do you really see that this is indeed the case? And could you maybe just comment a bit on the competitive landscape in the broad online space, please? Thank you.
Pavel Mucha: Good afternoon. I will take first two questions. So, regarding expenses, yes, as you rightly say, there was a bit of front-loading of marketing expenses in Q1 due to the revamp of lotto and Tzoker and launch of Eurojackpot. In Q2, you will see even increase in the marketing of expenses compared to Q1 because we have very important event in terms of Euro, which is one of the highlights of the year, always bringing a lot of new players both in retail and online. So, for sure, we want to capture on that. And we will be increasing our spend, both in retail and online. In Q3, Q4 there will be somehow lower compared to Q1, Q2, on the marketing expenses front overall year-on-year. Also, it's partly related to the second question, not only due to inflation and media due to very high demand, also by competition going up constantly. Overall, there will be some increase in marketing expenses year-on-year in 2024 full-year compared to 2023 full-year. Now, your second question regarding inflation. Of course, there has been big inflationary pressures, especially 2022, 2023. Now the inflation is somehow easing, but we had very tough negotiations across our vendors, across many important contracts. And although we managed to push back on many of the requests of vendors. There is some impact on inflation on our cost base, but I wouldn't say it's something dramatic. It's not the key driver of the operating expenses increase. So, I wouldn't say the inflationary pressure is something dramatic in terms of the OPAP cost base. I think with the third question, I will hand over to Jan.
Jan Karas: Thank you, Pavel. So, when it comes to online, indeed the performance is encouraging and we have, not only in Q1, but also in Q2, we keep good momentum across both non-exclusive, as well as non-exclusive. The market data from a GCU referred to are obviously referring to the non-exclusive market. There, we see the market evolving along the numbers. You indicated 9%, 10% growth, while OPAP Group is growing around 25%. So, in that sense, we do outperform the market indeed. When it comes to iLottery, that is a equally important online vertical for us where we are offering our services exclusively, and we are quite pleased with the evolution on this front likewise. Just a disclaimer to be transparent and clear, here the year-over-year comparison is not like for likes because in April last year, we have been launching KINO in online. So, in the last 12 months, we have significantly strengthened and expanded the whole proposition. Yet when we look at the iLottery vertical as such, it's certainly a correct growth to capture, and we certainly don't stop there. Our ambitions continue in the further growth of this category.
Draziotis Stamatios: Great. Thank you very much.
Operator: [Operator instructions]. The next question comes from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Osman Memisoglu: Hi, thank you for your time and the presentation. Just following up on the cost front, the increase in personnel expenses in percentage terms, is that something we should expect going forward? Any more color there would be helpful. And regarding the share buyback, apologies if this was announced earlier, are you planning to cancel the shares? Thank you.
Pavel Mucha: Thank you. On payroll, there are two key drivers in the Q1. One of it is definitely we are operating with elevated headcount. So, as we progress our business, there was certainly increase in headcount. And also given the inflationary pressure and competition in the labor market, we have to keep our salaries at market standard. So, there is definitely this pressure. In Q1 in particular, there were also some one-off termination expenses related to horse races. So, yes, payroll was a mixture of both in Q1, but certainly year-on-year, there will be some increase in payroll expenses when we compare particular quarters of 2023. Now, in terms of the share buyback, at the moment, we don't have concrete plan, but when we launched the program, ultimately, obviously we were planning to ultimately cancel the shares. So, that's our ultimate intention. So, going forward, that's what you may expect.
Osman Memisoglu: Thank you. And maybe just following up, any rough figure on this one-off for personnel side?
Pavel Mucha: It was pretty much most of what you saw as the difference between recurring and reported EBITDA. It was pretty much most of it. So, close to €1 million.
Osman Memisoglu: Understood. Thank you.
Operator: The next question comes from the line of Maxim Nekrasov with Citi. Please go ahead.
Maxim Nekrasov: Yes, hello. I have a few questions. First, can you please provide any color on trading in the second quarter so far in April, May? Second question, is there any update on the extension of licenses, particularly Scratch, which I think expires in 2026, and especially the core licenses that expire in 2030? And the last question is regarding betting, which was flat year-on-year and even down in online while most of the other segments were growing. So, what was happening in the betting and would you expect this trend to reverse in the second quarter and the rest of the year?
Jan Karas: Thank very much for your questions. So, Q2 trading, I have mentioned the positive momentum we experienced in our online performance especially the iGaming verticals that has - it is experiencing continuously increasing popularity, and iLottery, which is still for us, a growing category that we keep building and evolving. So, that has a good momentum. When it comes to retail, all verticals are not performing the same in retail. Some are performing well, some with some concerns, typical. Continuing challenge for us is Scratch category, which has a weaker performance, suffering from the variety of options that customers have to play. And we continue to focus in this area to reinvent the product and come up with innovative propositions to bring back the customers to the Scratch vertical. On the other hand, we have a lot of verticals that do perform well, like the draw-based games portfolio that I was mentioning in more detail in my presentation where it's certainly experiencing a very positive growth as a whole, driven primarily by Eurojackpot. So, overall, we continue to head towards the guidance provided to you, and we don't expect any change on that during Q2. When it comes to extension of licenses, we are now intensively preparing internally for the discussions around the Hellenic Lotteries licenses for Scratch and Passives. And it's something where we hope we will be able to step into conversations with the state representatives and the relevant authorities soon. Likewise, for the big licenses, as you call them, that are ahead of us in the future, we absolutely pay maximum attention to that, yet that is now too early to engage in any discussions for now on those. So, there is no - at this moment, no discussions happening on that front. When it comes to betting and sports betting in detail that you ask about, that's a little bit two different stories. In retail, we hope for - we were facing - but that wasn't across all providers. We were facing a challenging payout in January. So, that has influenced our Q1 numbers with favorable results for customers. However, it doesn't make sense to comment anything on sports betting vertical in Q2 being ahead of the major event of Euro, that we believe will have a significant positive impact on sports betting, or we expect it will certainly have a positive impact on footfall, bringing people to our stores, something that we have experienced two years ago with the World Cup. The particular impact on GGR is obviously dependent on the specific results of matches and how much the results will be favorable for customers or for the betting operators like OPAP. So, that remains to be seen. What I can say, certainly expected is that the increased footfall will have positive impacts on our other verticals as an average sports betting player is playing more than five games during their visits. So, overall, like I said before, we are heading towards the guidance provided. The Q2 performance is encouraging, and sports betting should be certainly an important contributor to that end of the year results where, fingers crossed, Euro will make a significant difference. I hope I covered your questions. If not, you feel free to ask more.
Maxim Nekrasov: Yes, thank you very much. That's very clear.
Operator: The next question comes from the land of Pointon Russell with Edison Group. Please go ahead.
Pointon Russell: Good afternoon, Jan, and Pavel. Thanks for the call. I have three questions, if that's okay. First of all, instant and passives revenue was down about 9% in the quarter. But last - the year ago, you had a very strong growth of 30 - I think it was almost 30% growth, and you are - you've got good revenue growth over two years. So, could you just talk about the drivers of that? What drove the strong increase last year and the reduction this year? Going back to expenses, sorry, people are laboring the points on expenses, you're very clear on what happened in marketing and payroll in terms of redundancies and the investment ahead of the launch of Eurojackpot. What actually happened in other operating expenses? Are there any things you'd like to point out there? And my third question is just a more general one in terms of, if you look at your delivery in Q1, you reported something like 25% of the mid-range of your full-year guidance, but with the Euros coming up, plus the Eurojackpot increasingly important to the business, are you just a lot more comfortable with the full year guidance than you perhaps were at the start of the year? Thank you.
Jan Karas: Thank you very much for your questions. So, more color on instants and passives. Regarding passives, I wouldn't like to make any conclusions now as to the trends and developments, honestly. So, good example might be, we have just launched a special edition of Laiko with, for the first time ever, giving us a main price, an apartment worth €400,000, which brings innovation modernity to the category, which is perceived generally as rather traditional. And it’s just one of many examples how we try to innovate this category. And I continue to believe that passives will continue to play an important role, not only in Hellenic Lottery’s portfolio, but in OPAP portfolio in general. When it comes to instants, it's largely the challenge that I have mentioned, that is - and I believe that's a good thing for the customer. There is an increasing size of the portfolio, increasing amount of options that our customers have that they can play. If you walk into an average OPAP store, there's really like a huge variety of opportunities that you can enjoy interacting with OPAP, the pleasure of playing, winning. And as we focus a lot on the experiential part, it's simply very tempting with many different initiatives you can do. Think of the massive popularity of Powerspin we brought. Think of the innovation in virtual games. So, while Scratch remains relatively strong in its absolute numbers, the trends are not - we don't see the growth that we would wish for simply because there is many other options that the customers have. It’s as simple as that. Now, does it mean that Scratch generally is in decline as a category that is in a decline of its lifecycle? For sure, we don't see it that way. We have in our plans further ideas how to develop Scratch through - to just give you hints of the line of thinking, Scratch families, innovative products within Scratch, revamped and completely repositioned communication as we had the same communication concept for last one and a half year, completely revamp presentation of the product in the point of sale that is more stimulating towards the impulse purchase. We believe that Scratch is a product vertical that has one distinctive, unique element, and that is that it is a real product that customers can touch and feel, literally, yes. Everything else is digital or it's a paper slip, but Scratch is a real product, and that will continue to play an important role in our sales strategy. And I believe that we still have opportunities to continue nurture this category and revamp it. Yet, it’s fair to say, for the reasons I actually explained, that it is certainly a challenging ambition.
Pavel Mucha: Okay, your second question regarding other operating expenses, those are purely business-driven. So, as we are constantly elevating the experience both in retail and in online, all that requires ongoing investment on OpEx front. So, it's purely business-driven and driven by our ambition and new initiatives to really drive the top-line. And that is not a single driver that can be somehow highlighted. In terms of how comfortable we are in terms of delivering of our guidance, we provided the guidance for the year only two months ago with our year-end results. And so, we are only two months from that. We were very carefully planning all the activities and what we should deliver for 2025. So, I would say to speak now just after two months, if we are more comfortable or what is our confidence, I would say it’s the same and what we announced. The start of the year has been very good. We are still quite early in the year, important event of Euro reverse. So, I would say, we are comfortable that we will deliver the guidance as we have announced
Jan Karas: As a CEO, I would - and speaking about terminology, I would reiterate that we are confident to delivering upon this guidance. It's certainly not a comfortable target that is easy to do, and we are putting a lot of efforts into everything that's ahead of us. The plans are solid. The momentum is good, and that's what drives our confidence. But we are certainly not talking about easy to deliver piece of cake, but I'm sure you understand that. Thank you.
Pointon Russell: Yes, thank you.
Operator: The next question comes from the line of Karan Puri with J.P. Morgan. Please go ahead.
Karan Puri: Hi. I have two questions if that's okay. The first one's on the royalty performance for Q1. It was a bit weaker than expected. So, how should we be thinking about it going forward? And the second one is on the sports results, what you're seeing in in April and May, just a bit on that will be really helpful. Thank you.
Jan Karas: Thank you very much. The royalties momentum, I believe is solid. Not I believe, I know. It is solid, and it's largely around our expectations. When it comes to sports betting, as I said before, I believe that this is a category that will have an important contribution to our year-end result. And as such, it's largely aligned with my general statement as to what our expectations are for the year. Euro, again, for the reasons I have explained in terms of the payout, that cannot be foreseen is now a big question mark, obviously with positive expectations ahead of - as to how is it going to go and how much positive contribution it'll bring to our numbers.
Karan Puri: Okay. So, is it sort of fair to assume that royalties grow something like what we saw in Q1 in terms of low single-digit growth, or is it possible because initially I think it was sort of thought of being growing about four-ish percent. So, what's the best sort of trajectory you think about when we think of royalties?
Pavel Mucha: I think the low single-digit growth is largely the line of expectations, I would support, yes.
Karan Puri: Great. Thank you.
Operator: [Operator instruction] I will now turn the conference over to Mr. Karas for any closing comments. Thank you.
Jan Karas: Thank you very much. For my closing remarks, thank you very much for being with us today. Our IR team will be looking forward, as always, to answer any other questions you might have and deep dive deeper in your inquiries. And we will be looking forward to talk to you again in September with hopefully an exciting updates. Until then, have a great summer and enjoy the upcoming major sporting events together with us. Thank you very much, and thank you for being with us today. Have a nice day. Thank you, moderator. Over to you.
Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Have a good afternoon.
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