^Original-Research: ZEAL Network SE - from NuWays AGClassification of NuWays AG to ZEAL Network SECompany Name: ZEAL Network SEISIN: DE000ZEAL241Reason for the research: UpdateRecommendation: BUYfrom: 21.03.2024Target price: 51.00Target price on sight of: 12 MonatenLast rating change: Analyst: Henry WendischElevated sales growth & Games gaining traction; chg. est. Topic: Yesterday, ZEAL released Q4 results and issued a strong FY'24e salesguidance, well above expectations. Here are our key takeaways: Blow-out sales guidance: ZEAL guides for sales of EUR 140-150m (eNuW old: EUR135m; eCons: EUR 128m) and an EBITDA of EUR 38-42m (eNuW: EUR 45.3m; eCons: EUR43m) with marketing expenses of EUR 40-45m (eNuW: EUR 42m). The elevated salesgrowth should stem from a growing billings margin (sales in % of billings)to above 15% by H2'24e (FY23: 12.8%; eNuW for FY'24e: 12.7%) thanks to 1)proactive shifting of players towards higher margin products (e.g., lotteryclubs), 2) thintroduction of another highmargin social lottery next to'freiheit+' and most importantly 3) going for price discrimination of usersregarding the service fees as lottery players are very price insensitive.This is a strong leverage for ZEAL, given the high amount of billings, buton the other hand requires additional indirect expenses and marketing,burdening short-term profitability. Q4'23 in line and FY targets reached: Lottery billings amounted to EUR 210m,2% yoy (eNuW: EUR 208m), while sales developed accordingly to EUR 30m, -2% yoy(eNuW: EUR 28.8m; eCons: EUR 29.6m) and EBITDA came in at EUR 9.8m, +1.5% yoy(eNuW: EUR 11.8m; eCons: EUR 11.4m). On a FY basis, ZEAL recorded Lotterybillings of EUR 843m (guidance: EUR 800-830m; eNuW: EUR 841m), sales of EUR 116m(guidance: EUR 110-120m; eNuW: EUR 115m) and an EBITDA of EUR 32.9m (guidance: EUR30-35m; eNuW: EUR33.4m) with marketing expenses of EUR 36m (guidance: EUR 34-39m;eNuW: EUR 38.8m) - see p. 2 for details. Upbeat Games adoption: while Q3'23 already showed a better-than-expectedGames contribution, Q4 lifted the bar even higher. Games contributed withbillings of EUR 25m (eNuW: EUR 19m) and sales of EUR 1.8m (eNuW: EUR 1.9m), meaningthat the average Games customer (Q4: 18k) spends c. EUR 92 on Games (APPU)per month, generating revenues for ZEAL of EUR 33 per player and month (vs. EUR7.80 ARPU at Lottery) and yielding a 36% pay-in margin (sales in % ofpay-in). For now, this contributed with 6% of Q4 sales, but once scaled,the Games business should become a second strong pillar of growth andprofitability for ZEAL, next to Lottery. Squeeze-out of Lotto24 by mid'24e: ZEAL intends to squeeze-out theremaining shareholders of Lotto24 (acquired back in 2019) after havingentered an agreement to acquire 0.6% of additional shares, raising theownership to 95.45%. This should have value accretive effects due to 1)being able to form a corporate tax group allowing ZEAL to offset the highprofits of Lotto24 with losses on holding level, especially as Lotto24'stax loss carry forward is used up now and 2) avoiding minority interestgoing forward. It should also lead to a normalization of ZEAL's elevatedtax rate (FY'23e 39%, +12pp yoy) to 32% after the squeeze-out. The purchaseprice for the additional 0.6% of shares remained undisclosed and thesqueeze-out price will be set by an independent auditor, hence uncertaintyprevails regarding the total SO payment. Regarding financing, the companyplans to take on additional debt, which we regard as unproblematic, giventhe strong net cash position (Y/E'23: EUR 30m). In sum, we continue to like ZEAL's upbeat growth story and the strongoperating leverage ZEAL's business provides. This, coupled with increasingcontributions from Games should lead to notable margin expansions goingforward. Moreover, our conservative CLTV estimate of ZEAL's total Lotterycustomer base (EUR 726m, see below) even exceeds the company's current marketcapitalisation, albeit not including the expected billings margin expansionto above 15% and also not including the potential stemming from Games. Consequently, we reiterate our BUY recommendation with an unchangend PT ofEUR 51.00, based on DCF.You can download the research here:http://www.more-ir.de/d/29211.pdfFor additional information visit our websitewww.nuways-ag.com/research.Contact for questionsDie Analyse oder weiterführende Informationen zu dieser können Sie hier downloaden: www.nuways-ag.com/research.NuWays AG - Equity ResearchWeb: www.nuways-ag.comEmail: research@nuways-ag.comLinkedIn: https://www.linkedin.com/company/nuwaysagAdresse: Mittelweg 16-17, 20148 Hamburg, Germany++++++++++Diese Meldung ist keine Anlageberatung oder Aufforderung zum Abschluss bestimmter Börsengeschäfte.Offenlegung möglicher Interessenskonflikte nach § 85 WpHG beim oben analysierten Unternehmen befinden sich in der vollständigen Analyse.++++++++++-------------------transmitted by EQS Group AG.-------------------The issuer is solely responsible for the content of this research.The result of this research does not constitute investment adviceor an invitation to conclude certain stock exchange transactions.°