Normalized lottery environment. Following the exceptionally strong Q4'24, Q1'25 came down to normalized levels. Spending for the Eurojackpot declined by 1% yoy (-25% qoq) to € 1.14bn, whereas the 6aus49 lottery spending declined by 5% yoy (-1% qoq) to € 871m.
Sales expansion to be driven by higher user base and price increases. We expect Q1 sales to come in at € 50.5m (+40% yoy), driven by (1) higher lottery billings (eNuW: € 267m; +9% yoy) thanks to a mix of a higher lottery user base (eNuW: 1.525m MAUs; +14% yoy) but also due to a lower ABPU (eNuW: € 58.50, -5% yoy), (2) a higher billings margin (sales in % of billings) of 17% (eNuW; +3.6pp yoy) as a result of the price increase imposed in June '24, (3) the new lottery product "Traumhausverlosung" with Q1 sales of € 4m (eNuW), and (4) sales from the Games business of € 3.4m in Q1 (eNuW; +56% yoy).
Operating leverage to deliver stellar profitability. Q1 EBITDA looks set to rise disproportionately by 73% yoy to € 16.3m (32.5% margin) thanks to an ever increasing fix cost coverage. Especially marketing expense (eNuW: € 14.5m) should be substantially lower than in Q4'24 (€ 20m) thanks to the absence of peak jackpots. Nevertheless, this should have led to a user intake of 125k (eNuW; vs. 452k in Q4'24 with 7x peak jackpots), thanks to the strategic shift towards brand awareness marketing.
Upbeat cash generation allows for high shareholder returns. During FY'24, ZEAL increased its cash position by € 57m to € 115m, of which € 75m came in from operating cashflows and € 71m from debt intake, which stood against a € 24m dividend, a € 25m share buyback and a € 41m squeeze-out payment for Lotto24. Mind you, the asset-light business model incurs no CAPEX. Consequently, excess cash can be returned to shareholders, which is why management proposed a € 2.40 DPS (€ 52m; 5.1% current yield) for FY'24 to be paid next month.
All in all, ZEAL looks set to report another strong quarter, showing that past initiatives lead to significant sales and earnings growth. With our updated estimates for MAUs and billings margin in the lottery brokerage business, we are now positioned significantly above the guidance. Against this backdrop, a guidance hike as early as Q1 results seems likely, in our view. Therefore, we confirm (1) ZEAL's position in the NuWays' AlphaList and (2) our BUY recommendation with an increased PT of € 62.00 (old: € 61.00), based on DCF.
ISIN: DE000ZEAL241
