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OPAP Annual Report


moore_capital54
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Just finished with the report.

 

Very basically, if OPAP revenue relies upon Greek citizens gambling, isn't that a risky proposition in a depressionary environment? The counter to that would be those generating revenue for OPAP are non-Greek citizens - but I do not know that from the annual report. Revenues are declining at the moment, and why would they not continue to decline in this environment? They do have two new lotto games potentially coming online, however.....

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OPAP´s streangth (besides being a monopoly...) is the cost structure. Almost all of its costs are variable, as the kiosks that sell for OPAP get paid on a commission basis.

 

Also, I´m not sure but I would think that they have strong control over their margins, as they control the odds that they offer.

 

A big risk is competition from online betting sites. 

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OPAP is cheaper than its two publicly traded comps (Lottomatica and SGMS) at 1.9x EBITDA and 3.8x FCF versus about 6.6/6.7x EBITDA and 8.0/10.0 x FCF for the comps.  The devaluation risk is the biggest here as the market is implying a 70% decline in Greek currency if they fall out of the Euro.  This appears to be a bet on Greece and the Euro.

 

Packer

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The biggest insider is the Greek government. According to a letter of intent to the IMF, they planned to sell their stake in 4Q2011, but obviosly, they are running behind schedule:

 

http://sportgamma.net/2011/08/17/profile-the-greek-organization-of-football-prognostics-opap/

 

The most recent document on OPAP at the Greek Special Secretariat for Asset Restructuring and Privatisations (SSARP) that I could find was this one from September:

 

http://www.minfin.gr/content-api/f/binaryChannel/minfin/datastore/bb/6d/82/bb6d8226765947df91d9acb6a4c5886a3048319f/application/pdf/OPAP+INDEPENDENT+VALUATION+RFP+020911.pdf

 

Here is a recent article claiming thet they will sell their stake by March:

 

"The target is to launch the tender in the first quarter, "the chairman of Greece's privatisation agency, Ioannis Koukiadis, told Reuters on Monday.

 

Opap, which has a total market capitalisation of about 2.3bn euros, said on Friday that Greece had transferred 29 percent of its holding to its privatisation agency.

 

Koukiadis declined to say when the sale was expected to be completed.

 

"There are a series of issues involved in the completion (of the sale) which are not time-bound," Koukiadis said. "I want to believe we won't have any problems as there is strong interest."

 

http://www.athensnews.gr/portal/11/52797

 

 

 

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Here is how we see it. The greeks will have to sell their stake, but their stake will command a premium as it reflects a control position. The privatisation of the stake brings with it additional value as a private operator will most likely work harder at boosting not just the divident prospects but the actual equity value.

 

Even if a new Greek Drachma is worth 30% of the current Euro, I believe OPAP will produce sufficient returns on invested capital.

 

If we compare to the ARS (Argentiniean Peso) situation in 2001 the Greek Drachma will roughly trade at 50-60% of the Euro long-term. With regards to some of the comments here relating to the velocity of greeks gambling or that the figures will decline based on the greeks nominal income, I disagree as if I have learned one thing in my life, never bet against people continuing to gamble.

 

One of the biggest misses we had here was LVS in 2008/2009. My partner, and our analyst tried to get me commit and I vetoed the idea due to the $10B debt load. Even after Adelson committed a capital injection I felt that in the new economy people would care less about gambling and it would take a while before gaming revenues reached their pre 2007 peak. It was fairly easy to estimate that LVS would survive, given the renewed injection but where I was having difficult with was on multiple. LVS was trading at $3 at the time.

 

Anyhow, I learned my lesson. The gambling business is an amazing one, and when you can buy a company which owns a monopoly on gambling or betting in an entire country, you do it hand over first.

 

OPAP is going to be a great case study for value investors a few years from now. We are not making it a big position given the current risk of currency devaluation, but as we feel this risk disappears we may make this a 5% position.

 

 

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If we compare to the ARS (Argentiniean Peso) situation in 2001 the Greek Drachma will roughly trade at 50-60% of the Euro long-term.

 

I am having a hard time following this comparison.  On the eve of the crisis, Argentina had a debt to GDP ratio slightly above 50% and a deficit around 2.5%.  By comparison Greece has a debt to GDP ratio of roughly 140% and a deficit around 10%.  Immediately after the Argentinian devaluation the peso went above 3 (33%).  Over the next ten years, the peso briefly strengthened to around 2.8 (36%) and currently trades at 4.3 on the official exchange, and over 5 (20%) on the unregulated market.  During those 10 years, Argentina's real gdp growth rate averaged over 7% per year.  They benefited greatly from surging global prices in their primary export (agriculture) and surging demand from their primary trading partner, Brazil.  If Greece devalues/defaults, why would their economy be expected to perform better than Argentina's, and why would their new currency stabilize at a higher rate than Argentina's?  What am I missing?

 

That being said, OPAP still seems cheap based on almost any metric.  And a monopoly on gambling in a country is almost, by itself, the definition of a "wonderful" business.  Does anyone know what percentage of apop's revenues come from turists?

 

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If we compare to the ARS (Argentiniean Peso) situation in 2001 the Greek Drachma will roughly trade at 50-60% of the Euro long-term.

 

I am having a hard time following this comparison.  On the eve of the crisis, Argentina had a debt to GDP ratio slightly above 50% and a deficit around 2.5%.  By comparison Greece has a debt to GDP ratio of roughly 140% and a deficit around 10%.  Immediately after the Argentinian devaluation the peso went above 3 (33%).  Over the next ten years, the peso briefly strengthened to around 2.8 (36%) and currently trades at 4.3 on the official exchange, and over 5 (20%) on the unregulated market.  During those 10 years, Argentina's real gdp growth rate averaged over 7% per year.  They benefited greatly from surging global prices in their primary export (agriculture) and surging demand from their primary trading partner, Brazil.  If Greece devalues/defaults, why would their economy be expected to perform better than Argentina's, and why would their new currency stabilize at a higher rate than Argentina's?  What am I missing?

 

That being said, OPAP still seems cheap based on almost any metric.  And a monopoly on gambling in a country is almost, by itself, the definition of a "wonderful" business.  Does anyone know what percentage of apop's revenues come from turists?

 

There are many different experiences. The one I am closest to is Chile. They devalued in steps from a fixed $39/USD regime in 1982 to $200 in 1986.

 

http://intl.econ.cuhk.edu.hk/exchange_rate_regime/index.php?cid=17

 

Inflation was very high in the mid 20% and was still 20%+ when the democratic elections were held in 1990. Official unemployment numbers, that included very large government sponsored employment programs, were in the 30%s. GDP fell 13% in 1982, only to fall another 4% in 1983.

 

http://www.economywatch.com/economic-statistics/country/Chile/year-1982/

 

But as you can see in the GDP PPP per capita chart at the top of that page, there is light at the end of that tunnel.

 

 

 

 

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  • 3 months later...
  • 2 weeks later...

Nothing new about OPAP, but here is an interesting article about the prospects for the Greek stock market after it has plunged 88% since the end of 2007. George Elliott, some lone hedge fund manager is used to being treated as a curiosity. Elliot plans to buy nothing but Greek stocks.

 

<snip>...

In March, Elliott met with the investment chief of a family office in London who said within seconds of sitting down that the firm had no interest in giving money to a hedge fund wagering on Greece. The executive merely wanted to hear his story, Elliott, the founder of Naftilia Asset Management Ltd., said in a telephone interview from his office in Athens.

Elliott, 39, responded by asking a few questions of his own, including whether the executive had invested in Russia after its 1998 currency crisis, in Argentina 10 years ago after the nation defaulted on its debt or in the Standard & Poor’s 500 Index (SPX) in March 2009, when the benchmark plunged to its lowest point in 13 years. Finally, Elliott questioned whether the family office’s investment chief had ever bought shares of Apple Inc. In all cases, the answer was no.

 

“Then you are not qualified to be discussing Greece with me because you have missed the best investment opportunities over the past 20 years,” Elliott retorted.

 

...<snip>

 

Here's the full article about George Elliott:

 

Lonely Hedge Fund Bullish on Greece Tries to Woo Investors

 

http://www.businessweek.com/news/2012-06-20/lonely-hedge-fund-bullish-on-greece-tries-to-woo-investors#p1

 

http://www.bloomberg.com/news/2012-06-20/lonely-hedge-fund-bullish-on-greece-tries-to-woo-investors.html

 

-----

Here is the site of Naftilia Asset Management:

http://www.naftiliaassetmanagement.com/

 

 

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