ZEAL Network SE
Original-Research: ZEAL Network SE (von NuWays AG): BUY

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: BUY
from: 06.03.2024
Target price: 51.00
Target price on sight of: 12 Monaten
Last rating change:
Analyst: Henry Wendisch

Q4 preview: tough comp for lottery, games still small

Topic: ZEAL should release final FY’23 figures on March 20th. Here’s what
we expect for Q4’23e:

Tough comp for lottery: Against a strong Q4’22 (peaking EuroJackpot), total
German lottery spending (on & offline) has declined by 9% yoy in Q4’23 (+3%
yoy for FY’23; Source: DLTB). For ZEAL it should also be hard to exceed its
strong Q4’22, as we expect a slight yoy decline of 3% to € 208m in billings
in Q4’23e. On a a FY’23e basis however, solid billings growth of 11% yoy to
€ 841m (guidance: € 800-830m) should be in the cards thanks to 1.15m MAU
(eNuW; +7.5% yoy) and an ABPU of € 61.00 (eNuW; +3.2% yoy). With an average
Lottery gross margin of 12.6% (eNuW), FY’23e sales from Lottery should grow
accordingly by of 6% yoy to € 106m (Q4: € 26.8m, -9% yoy).

Next data point of Games roll-out: While the new segment ‘Games’ showed
strong KPIs in its first quarter after introduction (Q3’23), we expect
further improvements in Q4, as more games were added and lottery players
should have been cross-sold. However, as regulatory approval takes more
time than anticipated, we expect conservative sales of € 1.9m (vs. € 1.2m
in Q3), based on an slightly increased pay-in for games of € 3.9m (vs. €
3.3m for Q3’23) and a constant pay-in to billings ratio.

Guidance well in reach: We expect ZEAL to exceed its lottery billings
guidance of € 800-830m (eNuW: € 841m) while the sales (€ 110-120m; eNuW: €
115m) and EBITDA (€ 30-35m; eNuW: € 33.4m) guidance should be reached at
mid-point.

Promising FY’24e outlook: While we expect Lottery sales to grow by 12% yoy
to € 119m (driven by continuous marketing driven user intake), the Games
business should also have first meaningful sales contribution of € 10m,
implying total sales growth of 18% yoy. As ZEAL currently targets existing
lottery players for its Games business, we model no marketing expenses for
Games while € 42m should be spent on Lottery for brand awareness & customer
acquisition. However, as user KPIs for Games look attractive (Q3’23 ARPU: €
7.67 at Lottery vs. € 22.02 at Games), additional € 3-8m of marketing
expenses could be spent on Games in return for more user intake during
FY’24e.

Against this backdrop, the recent share price weakness should be a buying
opportunity, especially as Q1’24 saw extraordinary strong jackpots already,
indicating a promising start into a strong growth year. Reiterate BUY with
unchanged PT of € 51.00, based on DCF.

You can download the research here:
http://www.more-ir.de/d/29071.pdf
For additional information visit our website
www.nuways-ag.com/research.

Contact for questions
Die Analyse oder weiterführende Informationen zu dieser können Sie hier downloaden
www.nuways-ag.com/research.
Kontakt für Rückfragen
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
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The result of this research does not constitute investment advice
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