Märkte & Kurse

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Original-Research: ZEAL Network SE - from NuWays AG

08.08.2024 / 09:01 CET/CEST
Dissemination of a Research, transmitted by EQS News - a service of EQS
Group AG.
The issuer is solely responsible for the content of this research. The
result of this research does not constitute investment advice or an
invitation to conclude certain stock exchange transactions.

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Classification of NuWays AG to ZEAL Network SE

     Company Name:               ZEAL Network SE
     ISIN:                       DE000ZEAL241

     Reason for the research:    Update
     Recommendation:             BUY
     from:                       08.08.2024
     Target price:               EUR 54.00
     Last rating change:
     Analyst:                    Henry Wendisch

Strong Q2 and new product launch; chg. est.

Strong Lottery business: Lottery billings came in at EUR 261m, +24% yoy (eNuW:
EUR 252m), better than expected, thanks to a favorable jackpot environment (2x
peak jackpots). Lottery sales grew disproportionately to billings by 37% yoy
to EUR 36m, (eNuW: EUR 33m) on the back of an better than expanded billings
margin of 13.8%, + 1.3pp yoy (eNuW: 13.0%).

Improved Games metrics, but roll-out held back by regulator: The slower than
expected roll-out of the full Games portfolio (c. 200-300 vs. currently 115
due to slow regulator's approval) has led ZEAL to focus less on MAU growth
(18k vs. eNuW: 28k). Nevertheless, user metrics have improved sequentially
thanks to a shift towards higher margin games. Thus, ARPU stood at EUR 40.5
(eNuW: EUR 35.8). Consequently sales came in at EUR 2.3m, up 5% qoq (eNuW: EUR
3.0m).

Dynamic top-line to continue: Q2 sales rose better than expected by 45% yoy
to EUR 40.7m (eNuW: EUR 37.5m) following a strong Q1. H1 thus showed a
remarkable 40% yoy top line growth thanks to lottery tailwinds and we expect
H2 sales growth to continue at c. 30% due to billings margin improvements
above 15% as of 10th June '24. Thus, even in the event of muted jackpots,
strong growth should be maintained throughout H2. Possible strong jackpot
environments should therefore serve as an additional sales boost.

Substantial EBITDA growth: Q2 EBITDA came in at EUR 10.7m, +144% yoy (eNuW: EUR
10.2m; H1: EUR 20m, +46% yoy) due to lower marketing expenses of EUR 12.1m, -7%
yoy (eNuW: EUR 11.6m), but also burdened by (1) increase in personnel expenses
by 53% yoy and (2) legal, consulting and recruiting expenses (indirect
costs: +51% yoy). Mind you, although Q2'23 was burdened by a hefty marketing
push (EUR 13m), the operating leverage of ZEAL's business model nevertheless
shines through, as ZEAL has grown sales disproportionately to OPEX.

High marketing efficiency maintained: Despite only 2x peak jackpots in Q2,
ZEAL maintained its stellar marketing efficiency. Cost per Lead (CPL)
increased only 1% qoq to EUR 33.4 (eNuW: EUR 38.0), better than expected.
Compared to last year (exorbitantly high CPLs in Q2 and Q3) CPLs decreased
substantially by 34% yoy in Q2, showing that the improved algoritm and thus
higher conversion rates increased marketing efficiency sustainably. -

Strong user intake: ZEAL has added 272k new leads (+31% yoy), clearly
indicating an improvement of marketing efficiency and beating our user
intake estimate of 200k. Consequently, MAU in Lottery grew by 20% yoy (3%
qoq) to 1.37m in Q2 (eNuW: 1.37m; H1: 1.35m).

Guidance confirmed, but unambitious now: Based on increasing monetization in
Lottery (and without any negative change in user activity or churn rates
expected) for H2, the sales guidance of EUR 140-150m (eNuW: EUR 157m; eCons: EUR
150m) seems unambitious now. Moreover, we are positioned at the top-end of

the EBITDA guidance of EUR 38-42m (eNuW: EUR 42m; eCons: EUR 42m) despite expected

increasing marketing expenses of EUR 48m (from which 53% has already been
incurred in H1).

New innovative product launched: Next to the continued additon of new games,
ZEAL has also launched a new raffle-type lottery 'Traumhausverlosung', which
should yield a billings margin of 26-33% (vs. 13-16% at Lottery). Key
advantages of the raffle-type lottery, in our view, are a) a tangible price,
e.g. an existing house, increasing emotional attachment as opposed to an
intangible lottery win and more importantly b) the illusion of higher
chances as at raffles, opposed to lotteries, there is always a winner but
the chances are unknow beforehand, thus increasing the players desire to
participate as he underestimates his chances. Against this backdrop and with
ZEAL's highly experienced and strong budgeted marketing power in mind, this
product looks set to start successfully. While still being below scale, this
first of its kind lottery in Germany has not only the potential to become a
positive EBITDA contributor in the mid-term, but could also serve as a
blueprint for additional raffles to be offered by ZEAL (e.g. cars, boats,
etc.). We also like the fact about this product, that ZEAL does not to
acquire market shares but rather enlarges the market. This again highlights
the innovative power it has within Germany's regulated lottery market.

FCF positive again: Following unfavorable WC swings in Q1 (FCF: EUR -3.6m),
FCF is back to normal levels (Q2: EUR 16.2m; H1: EUR 12.6m) due to the WC swing
coming back. With rising profitability, we also expect proportionate
increases in FCF going forward (cash conversion of 6090% FCF/EBITDA).

All in all, a strong release. ZEAL shows that it unites value and growth
while also being highly resilient against macro developments. Therefore, we
reiterate our BUY recommendation and ZEAL's position in the NuWays'
AlphaList with an unchanged PT of EUR 54.00, based on DCF.

You can download the research here: http://www.more-ir.de/d/30399.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
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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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1963559 08.08.2024 CET/CEST

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