^Original-Research: ZEAL Network - from NuWays AGClassification of NuWays AG to ZEAL NetworkCompany Name: ZEAL NetworkISIN: DE000ZEAL241Reason for the research: UpdateRecommendation: KaufenTarget price: 51Target price on sight of: 12 MonatenLast rating change: Analyst: Henry WendischNew chapter of growth; added to NuWays AlphaList ZEAL has openend a new chapter of growth stemming from rising monetizationin the Lottery business and also the Games business from FY'24e onwards. Insum, we expect sales growth of 25% for this year and a sales CAGR 23-26e of17%, here's why: Elevated lottery sales growth: ZEAL has relied on a more or less constantlottery billings margin (sales in % of billings) over the last years(12-13%), meaning that lottery sales grew more or less proportionate tolottery billings. Billings continue to grow with c. 8-12% p.a. thanks toZEAL's persistent user intake driven by the online transformation. Now, forthe first time, sales look set to outgrow billings (see p. 2 for details),as ZEAL takes steps to significantly increase the billings margin, whichshould lead to gross margin of more than 15% (+2pp) starting in H2'24e. Ingeneral, we regard ZEAL's sales as recurring, as average lottery expenseper user (APPU) grows slightly every year (+ 4% yoy in '23), while ZEALalso benefits from virtually no churn (below 5%). How does ZEAL improve the lottery billings margin? First of all, byintroducing a new social lottery, next to freiheit+, where ZEAL generateshigher margins than in DLTB lottery brokerage (mix effect). Secondly, ZEALaims to steer customer behaviour to higher margin lottery products (e.g.,lottery clubs & play-with-friends) by actively placing and promoting theproducts on the platforms (mix effect). However, we regard the thirdmeasure as the most important one, as it can happen overnight: selectiveservice fees (planned for H2'24e). As the lottery customers are extremelyloyal and hence price insensitive, it allows for ZEAL to charge someplayers selectively higher services fees than other players (price effect). Operating leverage in action: While the billings margin improvementsrequires additional marketing expenses and initial set-up costs for the newsocial lottery in the short-term, should lead to a flat EBITDA margin of28% for FY'24e. However, in FY'25e and beyond, we expect the operatingleverage to kick in an lift EBITDA margins to substantialy by 5pp yoy to33%. This also includes the complete Games portfolio rollout, which isexpected to be finished by end of H1'24e, hence also showing its fulleffect on profitability in FY'25e. During FY'23, Games contributed with EUR 1.3m EBITDA (25% margin), but afterbeing completely rolled out, we expect incremental Games EBITDA margins of85%, showing the strong earnings potential stemming from Games. Strong Q1'24 ahead: the first quarter of the year laid out a perfect startwith 4x peaking jackpots (vs. only 3x during all of FY'23e), which shouldlead to c. 300-400k newly registered users (i.e., +75-100k of additionalMAU, assuming 25% conversion rate) for ZEAL in Q1'24 alone vs. 600k duringall of FY'23. Additionally, Q1 Lottery bilings (currently +14% aboveaverage) and sales look set to come in strong as the high jackpotsmassively elevate user activity, as the irregular players then also playthe lottery and come on top of the regular players. Unique mix of value and growth at an attractive valuation: In ano-user-growth and constant billings-margin-scenario and assuming only a10y customer longevity, the CLTV of ZEAL's current Lottery user base (eNuW:EUR 726m) reflects the current market capitalization of EUR 745m. However, ourCLTV estimate grows by 25% to EUR 910m (see below) if the Lottery billingsmargin increases to 15%, still factoring in no MAU growth. This, coupled with the strong outlook ahead, leads us to add ZEAL to ourNuWays' AlphaList and confirm our BUY recommendation with unchanged PT of EUR51.00, based on DCF.You can download the research here:http://www.more-ir.de/d/29283.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.°