October 1, 2023

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HSBC: Why OPAP, Aegean Airlines and Jumbo are the best options in Greece

HSBC: Why OPAP, Aegean Airlines and Jumbo are the best options in Greece
Eftichios Vassilakis-Gian Karas-Apostolos Vakakis

Eftichios Vassilakis-Gian Karas-Apostolos Vakakis

The UK HSBC Bank and John Lomax team point this out Changing the country’s economic modelas the main point is that the fundamentals of the Greek macroeconomics have undergone a significant change and that is why it is proposed, in addition to the four Greek banks, to buy recommendations of a stock OPAPwith a target price of €20, on Aegean Airlineswith a target price of 16.30 euros and its share Jumbo With the price target increased to €33 from €29 previously.

  • HSBC is bullish on OPAP stock given the company’s overall growth outlook in the near term, also supported by additional growth from VLTs (Video Lotto Terminals) and the online channel. Internet will continue to be the main driver of growth in the medium term as the channel continues to grow strongly and take market share from retail. OPAP maintains a strong position in the online space with Stoiximan and its plan to grow its own online offering should add more to revenue in the medium term. HSBC expects its online share to grow to 25% by 2025, and this year expects continued strong growth from all verticals. After going online, VLTs are the largest medium-term growth driver for OPAP, posting strong growth in the past two quarters. OPAP is focused on increasing customer engagement by improving VLTs and has so far replaced 7 thousand machines (out of approximately 25 thousand licensed in Greece) with better customer features (modern designs, large screen, new high definition games). The remaining VLTs will also be gradually replaced, thus, the momentum in income will continue for the rest of 2023. OPAP’s dividend policy provides for dividends in excess of net earnings with a minimum of €1 per share. It expects to pay €1.3 per share over the medium term, which translates to a yield of +8%. There is not much investment evidence for OPAP right now and the earliest license renewal is for the lottery in 2026. OPAP has also significantly reduced its net debt and therefore has the potential to push for higher dividends as well. There is potential upside of 2% – 4%, as we saw last year (as well as 2020) when OPAP boosted yields through special dividend payments.
  • For Jumbo stock, HSBC has raised its price target to €33.00 as it sees several growth drivers, including store expansion, e-commerce growth and new franchise activities, underpinned by a strong business model. Jumbo’s sales growth continues to be strong and we’ve grown 20% year-over-year (YoY) for the seven months. Strong growth resulting from network expansion and recovery in Romania, along with positive growth prospects from Greece, strengthen the company. Jumbo is able to maintain its price quality, which is a cornerstone of its strong business model, resulting in a strong customer value proposition. Easing supply chain pressure, manageable inflation in Greece and strong wage increases will help create a more favorable business environment for the company. HSBC sees strong scope for expansion in Romania, which will remain at the heart of Jumbo’s medium-term growth strategy. Strong levels of cash and cash equivalents have supported management during the difficult period of COVID-19, and management’s action now reflects greater comfort in returning cash to shareholders through a higher dividend. There is room for further earnings growth, but it currently assumes payouts will reach 75% in 2023.
  • Bid for Aegean Airlines with a target price of €16.30. Aegean Airlines is the largest full-service airline in Greece, with a market share of 60% in the domestic market and around 20% in the Greek and European market. The Greek market is dominated by leisure demand, which remains strong and dominated the post-COVID-19 recovery. The main beneficiary of the recovery was the Aegean Sea, which enjoyed the strongest recovery in demand among its European peers since the pandemic. Even the pre-booking trend for the rest of the summer is still going strong. The airline has consolidated operations at its main hub in Athens, where demand is relatively less seasonal than other markets in Greece and competition is low, since most other European airlines fly to destinations where summer demand is strong. Besides, the company has greatly increased demand for its services and Athens Airport is expensive in terms of landing fees, and thus does not fit into the low cost strategy of airlines flying to secondary airports. According to RDC Aviation data, Aegean has nearly 44% of the market share in Athens airport, up from 38% during 2019. Strong demand and less seasonality has helped the Aegean turn positive profits even during winter, which it wasn’t. This has been the case historically and HSBC expects it to be. Earnings appear even in the coming winter. The company has a strong balance sheet and liquidity and generates good cash flows. At the end of 2022, it reported cash and equivalents of €591m and net debt (including capitalized leases relating to IFRS 16) of €419m. Excluding capitalized leases, Ege reported net cash of €393m. HSBC concludes that it has no significant investment or debt maturities in the next three to four years, so it should generate good cash flow.
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