Topic: Yesterday, the state lottery operator DLTB released its 2023 lottery data, revealing a continuous and strong outperformance of the online distribution channel.

Online transformation in full swing: In total, lottery players played for c. € 2bn via online channels, marking a solid 10.4% growth and 25% online penetration in 2023. While brick-and-mortar lottery still accounted for 75% of overall lottery stakes, it could only grow by 0.7% yoy. Hence, the online transformation remains in full swing and still offers plenty of growth potential for ZEAL's lottery business, as online penetration still stands at a mere 25% (vs. 23% in 2022). Going forward, we expect this trend to continue and catch up to penetration rates of other industries (online banking: 50%; online music: 80%; online holiday booking: 66%) and other European countries such as Sweden (48% online penetration and +11% yoy growth of online in 2022).

Slight outperformance against main competitor: Out of the € 2.04bn online billings, ZEAL should make up a market share of 41.2% in 2023 (vs. 41% in 2022), based on our estimate of € 841m billings in FY23e. This implies a growth rate of 11% yoy, slightly outgrowing the state lottery's landing page Lotto.de and the federal states' online presences (€ 1.2bn in billings, +10% yoy).

Strong current trading due to peaking jackpots. Currently, the jackpots of both major lottery products are close to record levels resulting in an increasing user activity. We hence expect solid Q4'23e figures that should reflect the higher activity levels. Even better, the  EuroJackpot currently peaks at € 120m and the Lotto 6aus49 reached its highest jackpot in history of € 48m (€ 50m maximum jackpot, before Nov' 23: € 45m) indicating a strong start into Q1'24e. Mind you that this is the time, when ZEAL acquires most of its new users and hence increases marketing activities.

Games roll-out to drive top line in FY'24e: Following the better than expected first full quarter (Q3'23) of the new Games business, we expect an improved Q4'23e as well as continous expansion of the roll-out throughout the year, In sum, we expect some additional revenue from Games of € 10m, that comes on top of the intact growth of the lottery business (eNuW: € 119m, +12% yoy) for FY'24e.

All in all, ZEAL continues to drive the online transformation while the Games roll-out should serve as a cherry on top. BUY with unchanged PT of € 51.00, based on DCF.