Topic: Last week, ZEAL specified the squeeze-out request for Lotto24, which should turn out to be highly value-accretive for ZEAL, in our view. In detail:

SO payment: Based on a company valuation conducted by KPMG AG and approved by the court-appointed auditor ADKL AG, Lotto24 is worth € 798m, implying a squeeze-out payment of € 36.3m for the remaining 4.55%, which is broadly in line with our initial expectation of € 33m.

Debt financing not a concern: The SO payment should be fully financed by debt. Given the a net cash position of € 25m at the end of Q1'24 as well as the strong cash generation (eNuW: € 30m FCF in '24) an additional € 36.3m debt draw should not be harmful to ZEAL.

Substantial savings to outweigh costs: According to our NPV calculation of € 143m (or € 6.40 per share; see p. 2), the SO should turn out to be highly value accretive for ZEAL, thanks to several costs savings outweighing the incurred costs: 1) due to the formation of a consolidated tax group (German: "steuerliche Organschaft"), going forward we expect the effective tax rate to decrease to 32% (from 39% in 2023). Mind you, the one-time deferred tax asset recognition on the back of the SO announcement  in Q1'24 led to a positive tax effect of € 17.2m which will be reversed over time with future taxable income. Additionally, we expect savings from 2) the elimination of minority interest and 3) the reduction of overhead costs (eNuW: € 0.2m p.a.), mainly due to the elimination of double costs for audit, legal, etc. The only costs associated with the SO are one-off legal costs (eNuW: € 1m) and the loan whose terms are undisclosed but for which we assume a 5% interest p.a. and a 7y duration.

Timeline: On Lotto24's AGM on Aug' 27th 2024, the SO resolution should be passed. We expect the SO to be executed when the time for appeals (4 weeks after the AGM) has passed.

Action: While the deferred tax assets have already been recognized in Q1'24, we already include the positive tax effect in our model. On the other hand, we include neither the debt draw nor the elimination of minority interest in our model before the SO is executed.

In light of the high NPV of the SO on top of the stellar operating performance, we reiterate our BUY recommendation with an unchanged PT of € 54.00, based on DCF.