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

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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: 10.04.2024
Target price: EUR 51.00
Target price on sight of: 12 Monaten
Last rating change:
Analyst: Henry Wendisch

Games business - a second EBITDA accelerator?

Following recent additions to the Games portfolio, we take this opportunity
for another deep dive into the new Games business, highlighting the
favourable business metrics and showing its enormous potential for ZEAL,
once scaled. Here's our take:

User metrics exceed those of lottery by far: thanks to the repetitive
character of Games, the customer journey gives ZEAL much more monetization
opportunities, as users can play 24/7 and for mutliple times a day vs. 1-3
days Lottery players need to wait for the next jackpot draw. This is
reflected at much higher ARPU (average revenues per user) of currently EUR
25.82 at Games vs. only EUR 7.68 at Lottery.

Change in Games KPIs ahead: While the business is still in roll-out, ZEAL
is about to add higher billings margin Games to the now 59 games counting
portfolio. Hence, we expect changing KPIs as billings margins directly
influence the pay-in to billings ratio, the pay-in margin and ultimately
ARPU.

Finding the sweet spot: maximizing the ARPU at Games should be one of
ZEAL's main target. As it controls the average billings margin (i.e., by
changing the Games product mix), it can experiment to some extent, as
higher billings margins reduce RTP and thus user activity. By finding the
optimal billings margin, the pay-in margin and thus ARPU can be maximized.

Conservative estimates already show promising bottom line effects:
According to our current estimates, the new business should account for 12%
of group EBITDA in '24 (EUR 5m) and for 17% of group EBITDA by FY'26e (EUR
11m), based on conservative user growth assumptions (40k by FY'26 vs. 17k
in FY'23) and only slight EBITDA margin improvements (50% in FY'26e vs. 42%
in FY'23).

Huge potential, once scaled: To asses the impact of the Games business once
meaningful user numbers are reached, our sensitiviy analysis shows the
enormous potential stemming from Games: Asuming 200k MAUs, an ARPU of EUR 30
and a 50% EBITDA margin, the annually recurring EBITDA contribution from
Games alone could amount to EUR 36m (vs. EUR 33m on group level in '23).

In sum, the Games business has the potential to become a significant second
pillar of growth and profitability for ZEAL. Hence, we confirm ZEAL's
position in the NuWays' AlphaList and reiterate our BUY recommendation with
an unchangend PT of EUR 51.00, based on DCF.

You can download the research here:
http://www.more-ir.de/d/29371.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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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG beim oben analysierten Unternehmen befinden sich in der vollständigen Analyse.
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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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