Topic: Based on another strong lottery environment in Q2’24 (see update from 09^th July 2024), we expect strong Q2 results with high top-line dynamics and strong profit growth. As a consequence, we regard the FY sales guidance as too conservative and expect EBITDA at the upper end of the guidance.

Lottery in high demand due to strong jackpots: Thanks to the lottery tailwinds in Q2 user activity should have increased (eNuW: +20% yoy MAU growth to 1.37m) and should have lead to a more favorable product mix (eNuW: 13% billings margin, +0.5pp yoy). Consequently, we expect € 252m in Lottery billings (+20% yoy) and Lottery sales to grow by 25% yoy to € 33m. - see p.2

Games roll-out still in progress: Due to delayed regulatory approvals, the complete roll-out of the full Games portfolio (c. 200) is still in progress (currently: 113 games). Thus, we only expect a moderate increase in monthly active users to 28k (vs. 22k in Q1) and slightly improving user economics qoq thanks to the addition of games with higher billings margins (eNuW: € 35.76 ARPU in Q2 vs. € 33.57 ARPU in Q1). Hence, billings from Games should arrive at € 34m and sales at € 3m (eNuW: 9% billings margin; 44% pay-in margin vs. eNuW: 16.2% at Lottery). - see p.2

Ongoing sales momentum: We expect continued sales momentum throughout Q2 with a 33% yoy sales increase to € 37.5m (73.6m in H1, +34% yoy) driven by the factors described above.

Continued marketing efficiency: Thanks to an improved marketing algorithm as well as higher conversion rates, ZEAL has achieved outstanding marketing efficiency in Q1 (CPL of € 33.04 vs. € 45.52 in FY’23). For Q2, we expect CPL to arrive slightly higher at € 38.00 as with only 2x peak jackpots (vs. 4x in Q1) marketing efficiency is hard to maintain at those levels. Accordingly, marketing expense should also come in lower at € 11.6m (vs. € 13.4m in Q1) but in return should have generated c. 200k new registrations (i.e., c. 50k additional MAUs, assuming a 25% conversion rate), in our view.

Ramp up in personnel and indirect expenses: For new and ongoing product launches we expect an elevated headcount and thus personnel expenses of € 7.7m (+45% yoy), but also higher indirect costs of € 4m (+22% yoy), especially in third party/freelancer services related to new product launches as well as legal costs related to the Lotto24 squeeze-out. - continued -

Disproportionate EBITDA growth: Accordingly, Q2 EBITDA should develop disproportionately and arrive at € 10.2m, up 133% yoy (H1: € 19.5m, + 42% yoy). Mind you, that Q2’23 saw a muted EBITDA due to massive marketing expenses thus serving as an easy comparable base.

FCF back up to normal levels: After a negative FCF in Q1 due to an unfavorable swing in WC, FCF should turn positive again (eNuW: € 17.2m vs. € -4m in Q1) as we expect WC to swing back in Q2.

Ssles guidance too conservative, upgrade likely: Per our update from 09^th July 2024, we increased our FY'24 estimates to reflect the above average lottery environment in H1. In addition to that, we expect that (1) the steps towards increasing the Lottery billings margin to > 15% as of 1st July 2024 (i.e. increase in service fees), (2) the addition of new games throughout H2 and (3) an all new social lottery, should lift sales above the guidance of € 140-150m (eNuW: € 155m; eCons: 148m). Therefore, an upgraded sales guidance seems likely, in our view.

EBITDA at upper end, but depends on H2 jackpots: A bit more uncertainty prevails around the EBITDA guidance, which is highly dependent on the marketing spent which is in return dependent on the jackpot situation of H2. Nevertheless, we are positioned at the top-end of the EBITDA guidance of € 38-42m (eNuW: € 42m), despite expected marketing expenses of € 46m (guidance: € 40-45m; limited to the brokerage business).

Value-accretive Lotto24 SO imminent: In our last update from 25th July 2024 we identified an NPV of € 143m (€ 6.40 per share) for the squeeze-out of the remaining 4.55% shares of Lotto24, indicating that the deal should be highy value-accretive, once fully executed (eNuW: Q4'24). Given that Lotto24 is ZEAL's cash cow and has used up all its tax-loss carried forward, the gains should stem from (1) tax savings due to the formation of a consolidated tax group and (2) the elimination of minority interest.

All in all, ZEAL's cash-generative business model with stable, double-digit ROCEs provides shareholders with a unique combination of value and growth. Thus, we reiterate our BUY recommendation with an unchanged PT of € 54.00, based on DCF.