Strong Lottery business: Lottery billings came in at € 261m, +24% yoy (eNuW: € 252m), better than expected, thanks to a favorable jackpot environment (2x peak jackpots). Lottery sales grew disproportionately to billings by 37% yoy to € 36m, (eNuW: € 33m) on the back of an better than expanded billings margin of 13.8%, + 1.3pp yoy (eNuW: 13.0%).

Improved Games metrics, but roll-out held back by regulator: The slower than expected roll-out of the full Games portfolio (c. 200-300 vs. currently 115 due to slow regulator's approval) has led ZEAL to focus less on MAU growth (18k vs. eNuW: 28k). Nevertheless, user metrics have improved sequentially thanks to a shift towards higher margin games. Thus, ARPU stood at € 40.5 (eNuW: € 35.8). Consequently sales came in at € 2.3m, up 5% qoq (eNuW: € 3.0m).

Dynamic top-line to continue: Q2 sales rose better than expected by 45% yoy to € 40.7m (eNuW: € 37.5m) following a strong Q1. H1 thus showed a remarkable 40% yoy top line growth thanks to lottery tailwinds and we expect H2 sales growth to continue at c. 30% due to billings margin improvements above 15% as of 10th June '24. Thus, even in the event of muted jackpots, strong growth should be maintained throughout H2. Possible strong jackpot environments should therefore serve as an additional sales boost.

Substantial EBITDA growth: Q2 EBITDA came in at € 10.7m, +144% yoy (eNuW: € 10.2m; H1: € 20m, +46% yoy) due to lower marketing expenses of € 12.1m, -7% yoy (eNuW: € 11.6m), but also burdened by (1) increase in personnel expenses by 53% yoy and (2) legal, consulting and recruiting expenses (indirect costs: +51% yoy). Mind you, although Q2'23 was burdened by a hefty marketing push (€ 13m), the operating leverage of ZEAL's business model nevertheless shines through, as ZEAL has grown sales disproportionately to OPEX.

High marketing efficiency maintained: Despite only 2x peak jackpots in Q2, ZEAL maintained its stellar marketing efficiency. Cost per Lead (CPL) increased only 1% qoq to € 33.4 (eNuW: € 38.0), better than expected. Compared to last year (exorbitantly high CPLs in Q2 and Q3) CPLs decreased substantially by 34% yoy in Q2, showing that the improved algoritm and thus higher conversion rates increased marketing efficiency sustainably. - continued - 

Strong user intake: ZEAL has added 272k new leads (+31% yoy), clearly indicating an improvement of marketing efficiency and beating our user intake estimate of 200k. Consequently, MAU in Lottery grew by 20% yoy (3% qoq) to 1.37m in Q2 (eNuW: 1.37m; H1: 1.35m).

Guidance confirmed, but unambitious now: Based on increasing monetization in Lottery (and without any negative change in user activity or churn rates expected) for H2, the sales guidance of € 140-150m (eNuW: € 157m; eCons:

€

150

m

) seems unambitious now. Moreover, we are positioned at the top-end of the EBITDA guidance of € 38-42m (eNuW: € 42m; eCons: € 42m) despite expected increasing marketing expenses of € 48m (from which 53% has already been incurred in H1).

New innovative product launched: Next to the continued additon of new games, ZEAL has also launched a new raffle-type lottery "Traumhausverlosung", which should yield a billings margin of 26-33% (vs. 13-16% at Lottery). Key advantages of the raffle-type lottery, in our view, are a) a tangible price, e.g. an existing house, increasing emotional attachment as opposed to an intangible lottery win and more importantly b) the illusion of higher chances as at raffles, opposed to lotteries, there is always a winner but the chances are unknow beforehand, thus increasing the players desire to participate as he underestimates his chances. Against this backdrop and with ZEAL's highly experienced and strong budgeted marketing power in mind, this product looks set to start successfully. While still being below scale, this first of its kind lottery in Germany has not only the potential to become a positive EBITDA contributor in the mid-term, but could also serve as a blue-print for additional raffles to be offered by ZEAL (e.g. cars, boats, etc.). We also like the fact about this product, that ZEAL does not to acquire market shares but rather enlarges the market. This again highlights the innovative power it has within Germany's regulated lottery market.

FCF positive again: Following unfavorable WC swings in Q1 (FCF: € -3.6m), FCF is back to normal levels (Q2: € 16.2m; H1: € 12.6m) due to the WC swing coming back. With rising profitability, we also expect proportionate increases in FCF going forward (cash conversion of 60-90% FCF/EBITDA).

All in all, a strong release. ZEAL shows that it unites value and growth while also being highly resilient against macro developments. Therefore, we reiterate our BUY recommendation and ZEAL's position in the NuWays' AlphaList with an unchanged PT of € 54.00, based on DCF.