Topic: ZEAL should release final FY'23 figures on March 20th. Here's what we expect for Q4'23e:

Tough comp for lottery: Against a strong Q4'22 (peaking EuroJackpot), total German lottery spending (on & offline) has declined by 9% yoy in Q4'23 (+3% yoy for FY'23; Source: DLTB). For ZEAL it should also be hard  to exceed its strong Q4'22, as we expect a slight yoy decline of 3% to € 208m in billings in Q4'23e. On a a FY'23e basis however, solid billings growth of 11% yoy to € 841m (guidance: € 800-830m) should be in the cards thanks to 1.15m MAU (eNuW; +7.5% yoy) and an ABPU of € 61.00 (eNuW; +3.2% yoy). With an average Lottery gross margin of 12.6% (eNuW), FY'23e sales from Lottery should grow accordingly by of 6% yoy to € 106m (Q4: € 26.8m, -9% yoy).

Next data point of Games roll-out: While the new segment "Games" showed strong KPIs in its first quarter after introduction (Q3'23), we expect further improvements in Q4, as more games were added and lottery players should have been cross-sold. However, as regulatory approval takes more time than anticipated, we expect conservative sales of € 1.9m (vs. € 1.2m in Q3), based on an slightly increased pay-in for games of € 3.9m (vs. € 3.3m for Q3'23) and a constant pay-in to billings ratio.

Guidance well in reach: We expect ZEAL to exceed its lottery billings guidance of € 800-830m (eNuW: € 841m) while the sales (€ 110-120m; eNuW: € 115m) and EBITDA (€ 30-35m; eNuW: € 33.4m) guidance should be reached at mid-point. 

Promising FY'24e outlook: While we expect Lottery sales to grow by 12% yoy to € 119m (driven by continuous marketing driven user intake), the Games business should also have first meaningful sales contribution of € 10m, implying total sales growth of 18% yoy. As ZEAL currently targets existing lottery players for its Games business, we model no marketing expenses for Games while € 42m should be spent on Lottery for brand awareness & customer acquisition. However, as user KPIs for Games look attractive (Q3'23 ARPU: € 7.67 at Lottery vs. € 22.02 at Games), additional € 3-8m of marketing expenses could be spent on Games in return for more user intake during FY'24e.

Against this backdrop, the recent share price weakness should be a buying opportunity, especially as Q1'24 saw extraordinary strong jackpots already, indicating a promising start into a strong growth year. Reiterate BUY with unchanged PT of € 51.00, based on DCF.