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Original-Research: ZEAL Network SE - from NuWays AG

Classification of NuWays AG to ZEAL Network SE

Company Name: ZEAL Network SE ISIN: DE000ZEAL241

Reason for the research: Update Recommendation: Kaufen from: 09.07.2024 Target price: EUR 54.00 Target price on sight of: 12 Monaten Last rating change: Analyst: Henry Wendisch

Stellar Q2 lottery environment to drive top-line; chg. est. & PT Topic: Q2 data of Germany's most popular lottery products are in the books, here's our analysis: After a very strong Q1 (4x peak jackpots), the EuroJackpot (eNuW: 45% of ZEAL's lottery billings) again showed a stellar performance. Two peak jackpots were spread apart in 12 draws (i.e. 6 weeks), meaning that during the build up to the high jackpot, the lottery stakes grew gradually over time. This resulted in an elevated average jackpot size of EUR 61m (vs. c. EUR 42m on average). Accordingly, lottery stakes remitted nationwide rose by 23% yoy to EUR 1.27bn. Even more remarkable, this accounts for another 10% qoq growth over the blow-out Q1'24 and is 52% above the historical average (see p. 2). On the other hand, Lotto 6aus49 (eNuW: 45% of ZEAL's lottery billings) did not peak even once and with the largest jackpot of only EUR 24m (vs. EUR 50m peak jackpot) showed a rather uninspiring environment in Q2. As a result, the remitted stakes came in at EUR 844m, down 8% yoy and 8% qoq (see p. 2). Combined, the strong EuroJackpot and the muted Lotto 6aus49 led to an increase of lottery stakes of 8% yoy and 2% qoq to EUR 2.12bn, which is a stellar 17% above the historical average (see p. 2). In sum, we expect Zeal to strongly capitalize on the Q2 jackpot tailwinds in terms of a) user intake of c. 200k new registrations (eNuW) and b) an elevated user activity leading to a better product mix and thus a higher billings margin (eNuW: 13% in Q2), both serving the current top-line momentum. As a result, a guidance hike as early as Q2 results seems ever more likely, as we now expect overall sales of EUR 155m (vs. guidance of EUR 140-150m). On top of 1) H1's superb lottery environment, pushing H1 sales and more importantly the user base above prior expectations, H2's top-line momentum should continue, even in muted lottery environments, due to 2) ZEAL's lottery billings margin expansion to >15% in H2 and thanks to 3) the expansion of the Games business. Consequently, EBITDA should now arrive at the top end of the guidance (eNuW: EUR 42m; guidance: EUR 38-42m) despite increasing indirect costs (eNuW: EUR 25m, +78% yoy) due to investments into a new social lottery and assuming marketing expenses of EUR 46m (guidance: EUR 40-45m). Against this backdrop, we reiterate our BUY recommendation and increase our PT to EUR 54.00 (old: EUR 53.00), based on DCF.

You can download the research here: http://www.more-ir.de/d/30167.pdf For additional information visit our website www.nuways-ag.com/research.

Contact for questions NuWays AG - Equity Research Web: www.nuways-ag.com Email: research@nuways-ag.com LinkedIn: https://www.linkedin.com/company/nuwaysag Adresse: Mittelweg 16-17, 20148 Hamburg, Germany ++++++++++ Diese Meldung ist keine Anlageberatung oder Aufforderung zum Abschluss bestimmter Börsengeschäfte. Offenlegung möglicher Interessenskonflikte nach § 85 WpHG beim oben analysierten Unternehmen befinden sich in der vollständigen Analyse. ++++++++++

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