CFA Institute Research Challenge Files/Greece... · 2019. 5. 6. · GGR CAGR despite the gradually declining gross margin from 33% (FY2015) to 21% (FY2021). The sharp increase reflects

CFA Institute Research Challenge Hosted by

CFA Society Greece

Athens University of Economics and Business

CFA Research Challenge 2017


Accounting & Finance Department 1

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)

Recommendation: BUY

Target Price: €10.73

Current Price: €8.2

Upside Potential: 30.8%

Executive Summary

Valuation Results

We issue a BUY recommendation on OPAP S.A. with a target price of €10.73,

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

have also performed Residual Income Valuation resulting to €10.30 target price, to

further substantiate our recommendation. Peer Group Analysis provided that OPAP

is 25% discounted compared to peers implying a target price of €10.98.

Robust Business Model

OPAP is the leading company in the Greek Gaming Market with a 72.7% market

share and controls the widest commercial network in Greece with 10,311 POS. The

game diversity is outstanding as OPAP holds 4 exclusive licenses to operate 14

different games. The regulatory framework prevents potential rivals from entering

the gaming market and provides OPAP with a significant comparative advantage

under a fully protected environment.

VLTs to maximize growth potential

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

license provided by the Hellenic Gaming Commission, allows OPAP to launch

35,000 VLTs throughout the country by 2019.

Impressive efficiency drives profitability

The expected high VLT driven revenue growth combined with asset depreciation

and minimum CAPEX requirement rapidly increases the efficiency, as measured by

asset turnover, from 0.8x in (FY2016) to 1.7x in (FY2021), causing expected ROE

to surge from 13.80% in (FY2016) to 31% in (FY2021).

Strong FCF generation which is paid out as dividends

OPAP’s elevated amortization (over €100 million), is expected to push FCF Yield

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

management’s intention to distribute the generated FCFs as dividends.

Mild-impact Investment Risks

The most important risk for OPAP is the highly unstable macroeconomic

environment. In case of a stagnation in the Greek economy (assumption of a

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.

Market Data

Market Cap. €2,647M

Shares Outstand. 318,112,195

52wk price range €5.4 – €8.9

Avg daily volume 564,131

Free Float 62%

Important Terms

GGR: Gross Gaming Revenue

NGR: Net Gaming Revenue

VLT: Video Lottery Terminal

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

-30%

-20%

-10%

0%

10%

20%

30%

40%

ATHEX Composite Index OPAP


Athens University of Economics and Business Accounting & Finance Department

2

1. Investment SummaryWe 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 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

market deregulation due to the expiring VLT license in 2027. Additionally, to further

substantiate the results, we have performed a 10Y Residual Income valuation, returning a

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

machine market which is estimated around €1 billion (in GGR). VLT revenues are

expected to contribute 39% to the aggregate GGR by 2021 and raise EPS with a 11.5% 5Y

CAGR.

Robust Profitability and Outstanding Cash Flow Generation OPAP operates under a straight forward business model with strong receivable and liability

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

only exception due to the elevated €90 million CapEx. With robust profitability levels and

a rapidly growing asset turnover driven by the increased efficiency of the VLTs’

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

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.

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

significant increase in Invested Capital. OPAP has followed the least capital intensive

solution for this project in order to minimize additional capital investments and upfront

payments to vendors. Consequently, ROIC will reach an impressive 23.5% (FY2021)

exceeding by far the minimum expected return as defined by 9.45% (FY2021) WACC.

OPAP’s growth potential is greater than peers’ 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

price. Even though OPAP seems overvalued for 2017, the increasing ROE from 17%

(FY2017) to 26.5% (FY2019) together with the estimated 3-year EPS CAGR of 13.2%

further support our expectations for 34% upside potential.

Investment Risks The most significant risk for OPAP in terms of likelihood and impact is the volatility in the

Greek macroeconomic environment. To examine the sensitivity of the implied target price

to this risk, we have assumed that Greece’s sovereign credit rating will remain constant at

Caa3 (Moody’s) and we reached a target price of €8.52. Furthermore, we have performed a

Monte Carlo Simulation on our DCF model to stress several assumptions simultaneously

such as the credit rating of Greece, the Wagers/VLT/day, the cannibalization rate, the

market share loss due to potential market deregulation and the perpetual growth rate from

2027 onwards. The results support our €10.73 DCF target price and return a standard

deviation of €1.12. The price can fluctuate between €8.54 and €12.22 in 90% confidence

interval with the minimum observation in our 10,000 iterations being €6.72.

Figure 1: GGR (€ billion)

Figure 2: Strong Cash Flows (€ million)

Source: Company Data, Team Estimates

1.40 1.39 1.501.84

2.12 2.25 2.2433%

21%

GGR Gross Margin

Source: Team Estimates

5%

10%

15%

20%

25%

ROIC WACC

Figure 3: Added value


0

100

200

300

400

500

Net Profit Dividend FCFF

Macroeconomic Risk

Regulatory Framework

VLTs’ Investment

Online Competition

Relationship with the agents

Illegal Betting Markets

Illegal Actions

IT and Cyber Security

GGR Contribution

Figure 4: Investment Risks




3

2. Business Description

History-Overview OPAP (Greek Organization of Football Prognostics) is the indisputable leader in the Greek

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

State transferred the last 33% of OPAP to Emma Delta. The robust business model has

enabled OPAP to sustain profitability despite the recession in the Greek economy.

Games’ Portfolio Analysis 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).

€ million 2015A 2016* 2017E 2018E 2019E 2020E 2021E

Lotteries

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 %

GGR 754 750 757 730 708 710 722 % of Total 53.9% 53.9% 50.4% 39.7% 33.4% 31.6% 32.3%

Sports Betting

Wagers 1,385 1,372 1,357 1,378 1,391 1,366 1,268 % change -0.88 % -1.11 % 1.53 % 0.96 % -1.79 % -7.21 %

GGR 414 411 406 412 416 409 379% of Total 29.6% 29.5% 27.0% 22.4% 19.7% 18.2% 17.0%

Instants/ Passives

Wagers 437 434 451 471 490 506 515 % change -0.57 % 3.89 % 4.53 % 3.96 % 3.21 % 1.79 %

GGR 170 169 175 183 190 197 200 % of Total 12.1% 12.1% 11.7% 10.0% 9.0% 8.7% 8.9%

Other Games

Wagers 217 221 223 225 227 229 232 % change 1.46 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 %

GGR 61 62 63 63 64 65 65 % of Total 4.4% 4.5% 4.2% 3.4% 3.0% 2.9% 2.9%

VLTs

Wagers 1,011 4,094 6,157 6,682 6,682 % change 305.11 % 50.39 % 8.54 % 0.00 %

GGR 101 450 739 869 869 % of Total 6.7% 24.5% 34.9% 38.6% 38.9%

Total Wagers 4,257 4,233 5,267 8,317 10,348 10,872 10,822 % change -0.57 % 24.43 % 57.90 % 24.43 % 5.06 % -0.46 %

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

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.

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

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

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 -

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

European Football Championship. The impact of the “cannibalization” on Instants and

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).

Regarding payout to winners, we do not expect significant fluctuations and have used 66%,

70% and 61% payouts for Lotteries, Sports Betting and Instants/Passives, respectively

(weighted average payouts based on the last 3 years).

Figure 7: GDP-Wagers

Source: IMF World Economic Outlook, Team estimates

54% 30%

12% 4%

2016

32%

17% 9% 3%

39%

2021

Lotteries Sports BettingInstants/Passives Other GamesVLTs

-20%

-10%

0%

10%

20%

% Change in GDP (real)

% Change in Wagers

33%

5%

62%

Emma Delta Baupost Free Float

Figure 5: Shareholders’ Structure

Figure 6: GGR breakdown

Source: Company Data



4

VLTs to Drive Revenue Surge OPAP has acquired a 10-year exclusive license enabling it to introduce 35,000 VLTs,

16,500 operated through its network and another 18,500 operated through sub-contractors.

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

aggressive 90% payout to winners, gradually declining to 87% up until 2021 according to

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 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).

“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

agreement with Inspired Gaming for the development of virtual betting games which will

become available to the customers both via OPAP’s commercial network and online.

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)

It has left an unchallenging footprint while upholding CSR values

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.

Other areas of social contribution are health and employment, with a particular interest in

sensitive social groups and environmental issues. One of the most significant projects OPAP

has undertaken is the renovation of two Children’s Hospitals which started in 2014

(Appendix 13).

3. Industry Overview and Competitive Positioning

Business Environment 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%

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

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

lasting pillars enabling it to effectively tackle external challenges with minimum financial

impact (P.E.S.T.L.E Analysis, Appendix 16).

Source: HGC Annual 2015 Report

2

3

1 2

1

Rivarly

Substitutes

SuppliersCustomers

Newentrants

Figure 8: VLTs launching

Figure 9: Commercial Network


10,536

25,344 35,000 35,000 35,000

Number of VLTs


Focused on providing an unparalleled entertainment package

0

5

10

OPAP CasinosState Lotteries Horse Races

Figure 10: Wagers of the Greek Gaming Market(€ billion)



5

Greek Gaming Market The Greek Gaming Market, has gone through a significant 35% downsizing, following the

cumulative 41% decline in GDP (2009-2015). However, it still comprises 0.98% of the

national GDP which is considerably higher compared to the EU-28 equivalent average of

0.59%. Online betting revenues contribute 6.73% to the total wagers in the GGM which is

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

advancements will enable more people to gain Internet access in the future, creating an

upside potential in the Greek online market segment. Although Greece’s GDP per capita is

the 11th lowest among EU peers, GGR per adult hits an impressive €194, being the 10th

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

OPAP as a potential pool of additional revenues in respect with the brand new VLT project.

Regulatory Framework The Hellenic Gaming Commission bears the entire responsibility for the regulation of the

betting games’ market in Greece. Every company has to be licensed by the regulatory

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

Figure 12. However, the regulatory framework is significantly rigid and only few other

companies have maintained special licenses, mostly casinos and online betting platforms.

Consequently, there are numerous obstacles for potential new entrants protecting the

dominant position of OPAP.

Competitive Positioning

Porter’s Five Forces

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

offer almost identical online sports betting games with those of OPAP but competition takes

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

threat, taking into consideration the market capitalization and product diversity of OPAP.

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

reduce the substitution threat for OPAP. In the gaming market, companies are not highly

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

the wide commercial network that OPAP has established, would make it extraordinarily

difficult for them to enter (Appendix 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.

However OPAP is able to effectively manage upcoming threats and transform them into

opportunities (Figure 14, Appendix 15).

2 3

1 2

1

Rivarly

Substitutes

SuppliersCustomers

Newentrants

Figure 12: Exclusive Licenses of OPAP

Figure 14: SWOT Analysis

Figure 11: GGM participation in the GDP

Instants

Horse Races

VLTs

Sport Betting

Lotteries

Online Betting Classic Betting

Figure 13: Porter’s Five Forces





84.63% 93.27%

15.37% 6.73%

70%

80%

90%

100%

EU Greece

Land Based Online



6

4. Financial Analysis

1.Profitability Ratios

2015A 2016* 2017E 2018E 2019E 2020E 2021E

GGR margin 32.88% 32.87% 28.52% 22.12% 20.47% 20.68% 20.66%

growth 1.60% -0.58% 7.94% 22.50% 15.12% 6.17% -0.56%

NGR margin 44.68% 39.29% 39.80% 37.22% 35.31% 34.59% 34.59%

growth 1.93% -12.56% 9.34% 14.53% 9.21% 4.01% -0.54%

EBITDA margin 26.94% 20.02% 21.79% 22.16% 22.28% 22.36% 22.35%

growth 8.82% -26.13% 17.47% 24.62% 15.71% 6.57% -0.63%

EBIT margin 21.63% 15.83% 18.01% 17.62% 17.16% 17.86% 16.19%

growth 2.22% -27.25% 22.83% 19.79% 12.11% 10.54% -9.88%

Net Profit margin 15.00% 10.41% 11.74% 11.67% 11.66% 12.36% 11.18%

growth 5.36% -31.02% 21.80% 21.72% 15.03% 12.51% -10.03%

2.Solvency Ratios

2015A 2016* 2017E 2018E 2019E 2020E 2021E

Total Debt to Equity 12.23% 34.73% 35.22% 37.00% 29.48% 22.48% 24.81%

Interest Coverage Ratio 31x 8.5x 10.1x 12.3x 18.7x 26.6x 27.3x


NGR margin decomposition

Increased GGR state contribution constrains 2016 margins

During 2016, the Hellenic Parliament decided to increase the state tax contribution on

GGR for OPAP from 30% to 35%. Consequently, OPAP’s 2016 profitability margins have

declined reflecting the increased GGR contribution from €412 million (FY2015) to €487

million (FY2016).

Agents’ Commissions

Agent commission fees for the 16,500 VLTs that will be operated through the commercial

network of OPAP (OPAP “Play”), will be calculated as 25% of the GGR generated by

these machines. The rest 18,500 VLTs will bear a 30% sub-contractor commission fee

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

wagers or 25.4% of the GGR. However, OPAP is in process of renegotiating the

relationship with the agents to fully align the interests of both parties. As a result we

expect a decline in the average commission rate from 8.4% to 8%.

Vendors’ Commission to limit NGR margin

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.

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.

Regarding the first 16,500 VLTs, contracts have been signed with 4 leading multinational

vendors: IGT, Inspired Gaming, Scientific Gaming and Synot.

Licenses’ Amortization will not restrain EBIT margin 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).

The rest of the licenses are amortized using the straight line method (Figure 17).

Growing FCFs will be distributed to the shareholders OPAP’s FCFs are expected to grow from €161 million (FY2016) to €393 million

(FY2021), reaching a 15.07% FCF Yield. The company is committed to distributing the

entire FCFs to the shareholders with Dividend Yield always exceeding 9%. Aggregate DPS

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

the long term we have considered a slightly more conservative and sustainable dividend

policy using 100% payout ratios.

Figure 16: NGR per VLT in 2017

Figure 18: Dividend Policy


Figure 15: Profitability margins


8.8% 9.8%

11.2% 12.0% 12.5%11.3%

0.00

0.25

0.50

0.75

1.00

DPS Dividend Yield

Wagers 233,600 Payout (90%) (210,240)

GGR 23,360 Tax Contribution (35%)

(8,176)

Agent’s Commission (25%)

(5,840)

Vendor’s Commission (12.5%)

(2,920)

Net Gaming Revenue 6,424

Amounts in €, Source: Team Estimates

Figure 17: Amortization


2.3% 2.8%

3.8% 4.2% 4.4%

5.4%

0

50

100

150

Horse races Instants/Passives

Lotteries/Sports VLTs

Amort./GGR

5%

-31%

22% 22%

15% 13%

-10%

0%

5%

10%

15%

20%

25%

30%

EBITDANet ProfitNet Profit Growth



7

5. Valuation

WACC (Weighted Average Cost of Capital)

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Rf 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% 0.24%

Beta 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79

ERP 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47% 5.47%

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

CoE 14.54% 12.87% 11.76% 11.76% 10.66% 10.66% 10.66% 10.66% 10.66% 10.66%

CoD 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56% 4.56%

D/(E+D) 26.05% 27.01% 22.77% 18.35% 19.88% 19.88% 19.88% 19.88% 19.88% 19.88%

WACC 11.94% 10.62% 10.12% 10.44% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45%


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

OPAP’s monthly returns on ATHEX’s monthly returns (2013-2016). The Country Risk

Premium (CRP) has been calculated as the credit default spread corresponding to the 2017

sovereign credit rating of Greece (Moody’s), adjusted by equity market volatility. CRP

declines from 12.63% (FY2017) to 7.72% (FY2026) following our estimations for

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

Leverage OPAP has signed 7 loan contracts with major systemic banks reaching an aggregate €365

million with 34.7% Debt-to-Equity ratio (FY2016). We have considered that OPAP will

renew 2 expiring loan contracts in order to maintain the same level of leverage in 2017 and

2018 to cover capex for technological upgrades in the agencies. Later on, the completion of

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 Cash and cash equivalents account for an impressive 82% of total current assets (FY2016)

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

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%

Asset Turnover [B] 0.8x 0.8x 0.9x 1.1x 1.4x 1.6x 1.7x

ROA [AxB] 12.3% 8.5% 10.4% 13.1% 16.5% 20.1% 19.3%

Equity Multiplier [C] 1.4x 1.6x 1.6x 1.7x 1.6x 1.6x 1.6x

ROE [AxBxC] 17.45% 13.78% 17.02% 21.76% 26.47% 31.23% 31.00%


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

Equity Multiplier so as to reflect the estimated relatively stable capital structure.

Consequently, ROE is expected to gradually double up by 2021 and reach 31% (Extended

DuPont, Appendix 5).

2017 Cost of Equity (CoE): 14.54% Rf + Beta *(ERP + CRP)

2017 Equity Risk Premium (ERP): 5.47% Real GDP

growth (EU) + Inflation

(EU) +Div.Yield

(Stoxx) 1.6% + 1.1% + 2.77%

2017 Country Risk Premium(CRP): 12.63% Credit Default

Spread *σ(Equities) /σ(Bonds)

10.4% * 37.83 / 31.16

0

100

200

300

400

Long term Loans Short term Loans

Figure 20: DuPont Analysis


Figure 19: Debt Levels (€ million)


12% 8%

10% 13%

16% 20% 19%

17%

14% 17%

22%

26%

31% 31%

ROA ROE

*We have assumed 0% P/E growth

Moody’s Rating and Credit Default Spreads

Caa2 10.40%

Caa1 8.66%

B3 7.51%

B2 6.36%



8

account the volatility in the regulatory framework.

Capital Expenditure (Capex) In accordance with management guidance, we expect €90 million capital expenditure in

2017 concerning the installation and improvement of technological infrastructure in

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

expect an additional €45 million CAPEX for completing the technological upgrade.

Thereafter, we do not expect significant capital expenditures.

Discounted Free Cash Flow to the Firm Model (FCFF) 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*

NOPAT 198.5 236.4 262.5 288.1 259.9 254.7 254.9 258.0 266.7 254.1 283.3

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

Δ(NWC) 2.8 11.3 9.4 4.2 1.3 -1.4 -0.1 0.7 0.7 -0.9 0.1

FCFF 161.4 262.8 356.6 381.2 393.2 390.8 389.7 392.0 392.8 373.8 283.2

WACC 11.9% 10.6% 10.1% 10.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4%

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

Capital charge. ROIC outperforms the WACC level each year driven by the sustainable

profitability levels and declining invested capital, created by the VLT investment.

€ million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027*

NOPAT 198.5 236.4 262.5 288.1 259.9 254.7 254.9 258.0 266.7 254.1 283.3

Inv. Capital 1,416 1,401 1,351 1,208 1,090 982 982 982 982 982 982

Res. Income 29.5 87.5 125.7 162.0 156.9 162.0 162.1 165.2 174.0 161.3 190.6

ROIC 14% 17% 19% 24% 24% 26% 26% 26% 27% 26%

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

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.

P/E EV/EBITDA ROE EPS CAGR PEG

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

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

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

Prem./Disc. 6% -1% -6% 14% 11% -38% 4% 34% 68% 41% -25%

Source: Thomson One, Team Estimates

0

50

100

Tangible Assets Intangible Assets

Figure 21:Capex (€ million)


PV 2017-2026 2,216.0

PV Terminal Value 1,267.3

EV 3,483.3

Net Debt -71.3

Market Cap. 3,412.0

Shares Outst. 318,112,195

Target Price 10.73

PV 2017-2026 868.8

PV Terminal Value 872.1

Equity+Debt 1,415.8

EV 3,156.7

Net Debt -71.3

Market Cap. 3,085.4


Target Price 10.30

14.0

7.8

14.8

8.9

P/E EV/EBITDA

Median OPAP

Figure 22: In 2017, OPAP seems to be overvalued….




9

Based on the 2017 P/E and EV/EBITDA ratios, OPAP seems overvalued compared to

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

and EV/EBITDA respectively). OPAP’s 2019 ROE is estimated at 26.5% which is 68%

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

median. This 25% discount leads us to a 34% upside potential for OPAP. The €10.98

implied target price has been derived exclusively by this 34% upside potential and reflects

the expectations for increased revenue generation related to the VLT project.

6. Investment Risks

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

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

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 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.

Figure 24: Risk Matrix

Figure 25: Altman’s Z Score



11.2

6.3

10.6

3.9

P/E EV/EBITDA

Median OPAP

Figure 23: ….but in 2019 it will be undervalued




10

Risk Scenarios We have stressed individual variables (ceteris paribus) on our FCFF model to illustrate the

volatility of the target price to negative scenarios related to the most important risk

categories. Starting with ER 1, we got a target price of €8.52 assuming that Greece’s

sovereign credit rating will not be upgraded and WACC will remain constant at 12.78%. In

case of an unexpected change in the regulatory framework (RR 1) that prevents the

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

major assumptions such as the credit rating of Greece, the Wagers/VLT/day, the

cannibalization rate, the market share loss due to potential market deregulation and the

perpetual growth rate from 2027 onwards, as dynamic variables following certain statistical

distributions. After performing 10,000 iterations, we have reached a mean target price of

€10.21 with €1.12 Standard Deviation. The minimum value of the final distribution is €6.72

reflecting the worst case scenario regarding revenue generation and macroeconomic

recovery of Greece. Our estimation is that company price will fluctuate between €8.54 and

€12.22 as defined from the 90% confidence level (Appendix 25).

7. Corporate GovernanceOPAP S.A. has adopted The Hellenic Corporate Governance Code (Code) since 2013,

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

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

and governance bodies should be in accordance with business core values and objectives.

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

understood the Code and they will adhere to and comply with its principles and provisions.

Reports on employee compliance are subject to review by the Audit Committee. Moreover,

regarding whistleblowing, illegal gaming and responsible gaming, hotlines are operated by

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 (-

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

conclusion that OPAP has developed a framework of high added value principles enabling it

to achieve the best practices witnessed worldwide.

3 3

3.5

3.5

4 3

3.5

3.5

4

012345

Composition

Information and Support

Evaluation

Financial and BusinessReporting

Risk Management andInternal Control

Audit Committee andAuditors' Report

Remuneration Committeeand Director's Report

Relations withshareholders

The Annual GeneralMeeting

54%

23%

23%

Non executives

Independent nonexecutives

Executives

Figure 28: BoD Structure

Source: OPAP Financial Statements

Figure 29: Beneish’s M Score


Figure 27: Monte Carlo Simulation

Statistics Summary

Min 6.72 Variance 1.26

Max 16.17 Skewness 0.55

Mean 10.21 Kurtosis 3.72

Std Dev 1.12 Median 10.11

Number of Iterations: 10,000

Number of Inputs: 30



Risk Stressed Variable Price ER 1 WACC €8.52 RR 1 VLTs Number €8.83 OR 1 Wagers/VLT/day €9.91 MR 2 Market Share €10.16 OR 2 Agents’ Commission €10.22


Figure 26: Risk Scenarios

Figure 30: CG major aspects assessment




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 and impairment

-50.321 -74.332 -58.278 -63.644 -90.662 -115.485 -108.178 -144.678

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


(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 and impairment

-137,678 -137,678 -137,678 -129,761 -121,844

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





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 and Liabilities [C+D+E]

1,752,737 1,708,833 1,707,236 1,693,739 1,643,259 1,499,105 1,381,169 1,296,469





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





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




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




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 / (Total Debt+Total Equity)

26,14% 27,06% 22,78% 18,34% 19,84% 19,84% 19,84% 19,84% 19,84% 19,84% 19,84%

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

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%

Cost of Equity = Risk Free Rate + Beta*(Mature market Risk Premium + Bond Default Spreads*(Std. Dev. in Equities / Std. Dev. in Bond Price))




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


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





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 Median

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%

OPAP vs Average

-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%




Appendix 10 : Organizational Structure

Appendix 11 : Geographical Distribution of Commercial Network

Appendix 12 : Games’ Participation to Wagers

KINO 43.99%

JOKER 6.32%

LOTTO 0.87%

PROTO 0.50%

SUPER 3 0.31%

EXTRA 5 0.13%

STIHIMA 31.35%

MONITOR GAMES 1.04%

PROPO 0.13%

PROPO-GOAL 0.01%

LAIKO 2.43%

ETHNIKO 1.00%

SKRATS 6.82%

Other 5.11%

Lotteries 52% Sports

Betting 32%

Instants and

Passives 11%

Other 5%




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.




Appendix 14 : Porter’s Five Forces

Intensity of competitive rivalry (2):

Casinos and online betting platforms consist the most

important competitors of OPAP

These competitors hold the 22% of the gaming market share

while OPAP SA and its subsidiaries hold the rest

78%.Potential expansion is limited due to the existing

regulatory framework

Currently, the illegal gaming market can be perceived as the

most important competitor, taking into consideration that its

value is estimated around € 1 billion in a yearly basis.

However, the investment of OPAP SA in VLTs will minimize

the market share of casinos and significantly reduce the

revenues of the illegal market

Threat of substitute products (3):

The vast majority of OPAP SA products are unique in the Greek

gaming market. Casinos offer slightly different games which are

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

1 Low 2 Low to Medium 3 Medium 4 Medium to High 5 High

2

3

1 2

1

Rivarly

Substitutes

SuppliersCustomers

New entrants

Average: 1.8




Strengths

• Market leader • Widest commercial

network in Greece • Strong cash flows

• Game diversification

Weaknesses

• Online sport betting competition

•Lack of geographical diversification

• Games' "cannibalization"

Opportunities

• VLTs market • Virtual sports games

• Illegal Betting Markets

• Customer base enhancement

Threats

• Macroeconomic Environment • Regulatory Framework

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

from owning exclusive licenses. Moreover, its commercial

network is expanded throughout Greece and Cyprus having

an aggregate total of 4,739 POS (as of 31.01.2015). This

classifies OPAP’s retail network as the largest and most

widespread in Greece, exceeding the number of the banks

and post offices combined. The strong cash flows that the

company produces, ensures the prospective stability and

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

costumers’ expectations as OPAP offers 14 different games,

save the ongoing VLT project.

Weaknesses

OPAP has to face intense competition in the online sport

betting market by the 24 online platforms operating under

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.




Appendix 16 : P.E.S.T.L.E. Analysis

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

state of the EU and has established strategic alliances with international organizations

such as NATO, IMF, OECD etc. which counterbalances political uncertainty. A

structural problem in the political environment is the extremely frequent changes in laws

and tax rates. Concerning OPAP, the Greek State has levied a special tax calculated as

35% of the Gross Gaming Revenue (GGR) which is considerably higher compared to the

European average. Last but not least, capital controls have been imposed to minimize the

instability in the national banking system after the political uncertainty created by the

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.

Moreover, unemployment rate has skyrocketed, restricting purchasing power to a

historical low together with the minimization of the disposable income. On this context,

the Greek Gaming Market has gone through an aggregate loss of 38% since 20081.

Despite the adverse recession period and the market decline, people have preserved their

consuming habits towards betting. In particular, Greeks seem to be very keen on betting

games, as the Greek Gaming Market consists 0.98% of the GDP, outperforming most of

the European peers. Internet betting platforms seem to be more attracting to young age

groups, while the older age groups prefer the traditional games. However, there is an

overall increase of internet users. Lastly, the minimization of the gender inequality has

eliminated the prevalent belief, that lucky games and betting is a men’s case.

Technological advance during the last decade has fundamentally changed the

communications, transactions and the means of entertainment. As a result, not only there

are new online and digital games available but the classic ones have been revolutionized

as well. OPAP follows tightly the technological transformation, by adding innovative

games to its portfolio and redesigning the already existing ones to match with the

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

the segment. Nevertheless, OPAP follows the ISO 14001:2004 concerning environmental

protection. Moreover, the company has reduced energy consumption and has extended

recycling, especially paper.

The legal framework issued by the Hellenic Gaming Commission makes it quite difficult

for competitors to enter the market, as most of the licenses are exclusive. The current

situation is very helpful for OPAP and enables it to operate without any significant threat

from competitors. On the other hand, the framework obliges OPAP to abide by specific

requirements in terms of game specifications which leads to increased operational costs

and reduced efficiency.

1 Hellenic Gaming Commission Data

P E S T L E Political Economic Social Cultural Technological Legal Environmental

Political Instability

High Taxation

Capital controls

Economic Depression

High rates of unemployment

Betting Habits Increase of Internet users

Demographics

New games

Alternatives

New means of payment

Lottery monopoly

Responsible gaming

OPAP follows the ISO 14001:2004

55%

85%

25% 69%

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Internet Penetration Rate

European Union Greece

Source: Eurostat

0

100

200

300

400

500

600

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Δισ

εκα

τομ

μύ

ρια

Debt - GDP (€ billion)

Debt GDP

Source: Eurostat

0

2

4

6

8

10

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Wagers in the GGM (€ billion)

OPAP Casinos

State Lotteries Horse Races





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

Operating Hours 10:00-24:00

(10:00-02:00 Fridays Saturdays and holidays)

10:00-02:00 (10:00-04:00 Fridays

Saturdays and holidays) Maximum Jackpot 20,000 50,000 Minimum Distance between VLT venues

200m No limit

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, 2

nd 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




Appendix 18 : Exclusive Licenses

Title Description Games Expiry Date Cost

VLTs

OPAP was granted in 2011 the right to operate 35.000 video

lottery terminals in Greece. Since then, the project has been

suspended until the beginning of 2017, due to changes in the

regulatory framework.

35.000 VLTs 2027 €560

million

Instants and

Passives

In 2013 OPAP renewed through Hellenic Lotteries S.A. its

license concerning Instant & Passives. OPAP SA controls

67% of Hellenic Lotteries while the rest is equally distributed

between Scientific Games and Intralot. The joint venture

consists of companies leaders in the Lottery Tickets segment

and the exclusivity of the license provides significant potential

for expansion.

Scratch, Ethniko,

Laiko

2035

€190

million +

30% of the

GGR

Numerical Lotteries

and Sports Betting

OPAP holds an exclusive license for numerical lotteries and

sport betting games that expires in 2020. In 2011, signed the

expansion of the license till 2030. As a result OPAP has the

right to organize, conduct and manage the existing 13 games,

along with operating new games, permitted by law, by any

mean possible.

Stihima, Joker,

Lotto, Propo,

Proto, Super 3,

Extra 5, Propo-

Goal, Kino,

Monitor Games

2030 Online

Numerical

Lotteries: 2030

Online Sports

Betting: 2020

€375

million +

5% of the

GGR (from

2020 to

2030)

Horse Races

OPAP has acquired in 2016 the exclusive right to organize

and conduct Horse races in Greece and organize mutual

betting on them. The license also includes organizing and

conducting mutual betting on horse races online.

Land Based and

Online Horse

Races

2035 (Online: 2020)

€40

million

Appendix 19 : Product Portfolio based on GGR

(The size of the circles represents the participation rate on the GGR)




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

Wagers1

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%

Payout to winners2

909,498 3,643,518 5,417,809 5,813,608 5,813,608

GGR3

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

Amortization1

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%




Appendix 21 : Wagers Assumptions

Lotteries Sports Betting Instants and Passives

Factor GDP1 Market

Transformation Total GDP

1 Seasonality Competition Total GDP

1 Market Transformation

Total

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

VLTs is expected to minimize

wagers from lotteries.

Especially the VLTs that will

be installed in the already

existing agencies are expected

to obtain a significant

percentage of the lottery

revenues. We assume that the

revenue cannibalization will be

gradually reduced until 2022.

The exclusive license for

lotteries has been extended up

until 2030 and consequently we

do not expect any kind of

market deregulation or

competitive rivalry.

In 2017, we have calculated a 2% reduction in

wagers due to the European Championship

that took place in 2016 and had created a

temporary positive impact to the financial

results. Similar seasonality adjustments are

expected for 2020 and 2021 due to the

European Championship of 2020.

Competition is already pushing down OPAP

revenues from online sports betting. We

expect competition in the future to be more

intense, as internet penetration rate will be

increased and online market will acquire a

bigger market share. Moreover, the online

betting rivals operate under a transitional

framework which is expected to become

permanent by the expiration of the online

betting license of OPAP in 2020.

VLTs, virtual reality games and

other intuitive betting products are

expected to slightly affect the

instants and passives market.

Technologically advanced

products will grab the customers’

interest and demand for traditional

batting games will be reduced.

However the overall result will be

either positive or neutral due to the

GDP push. In 2025, the exclusive

license is about to expire and we

asuume a significant market share

loss for OPAP, as it is highly

possible more rivals to get into the

market.

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

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

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%




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

making process is taking place through a

male-based Board, whereas 75% of BoD

members are not Greek and 20.58% of the

Top 34 managers are female. Regarding the

Executives, the 41.6% are female and the

58.33% are non-Greek nationals.


Every member of the Board has access to

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

3 3

3.5

3.5

4 3

3.5

3.5

4

-1

1

3

5Composition


Evaluation

Financial and Business Reporting

Risk Management and InternalControl

Audit Committee and Auditors'Report

Remuneration Committee andDirector's Report

Relations with shareholders

The Annual General Meeting




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

LVGI Leverage Index [(Current Liabilitiest + Total Long Term Debtt) / Total Assetst] / [(Current Liabilitiest-1 + Total Long

Term Debtt-1) / Total Assetst-1] 1.369

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

Z = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 = 4.64

Z > 2.6 -“Safe” Zone

1.1 < Z < 2.6 -“Grey” Zone

Z < 1.1 -“Distress” Zone

Result: Safe

We have calculated the Altman’s Z score using the formula for non-manufacturing companies




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

(ER1)Macroeconomic

Risk

Country Risk

Premium(CRP)-% PERT

Min:5.05%

Max: 14.02%

Most likely:[7.72%,12.63]

(OR1)VLT Investment

Risk

Lotteries’

Cannibalization-%

Normal

Distribution

Mean: [-10%,-1%]

Std. Dev.: 2%

Wager/VLT/day-€ Normal

Distribution

Mean:[€418,€640]

Std. Dev.: €200

(RR1)Regulatory

Framework Risk

Market Share Loss-

%

Normal

Distribution

Mean: -35%

Std. Dev.: 20%

Perpetual Growth

Rate-%

Normal

Distribution

Mean: 0%

Std. Dev.: 1%


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.

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.

CFA Institute Research Challenge

Documents

CFA Institute Research Challenge Files/Greece... · 2019. 5. 6. · GGR CAGR despite the gradually declining gross margin from 33% (FY2015) to 21% (FY2021). The sharp increase reflects