Original-Research: ZEAL Network SE - from NuWays AG

Classification of NuWays AG to ZEAL Network SE

Company Name: ZEAL Network SE

Reason for the research: 
Recommendation: Kaufen
from: 10.05.2024
Target price: EUR 53.00
Target price on sight of: 12 Monaten
Last rating change: 
Analyst: Henry Wendisch

Staggering Q1 kicks off new growth phase; chg est. & PT
On Wednesday, ZEAL released staggering Q1 results above expectations with
strong sales growth and better than expected profitability. Moreover, ZEAL
substantially improved marketing efficiency which drove customer growth to
record levels. In detail:
Strong Lottery business: Lottery billings came in better than expected at EUR
246m, +22% yoy (eNuW: EUR
234m) and were driven by 4x peak jackpots. Lottery sales grew by 28% yoy to
EUR 32m (eNuW: EUR 31m) thanks to the strong billings coupled with a solid
billings margin of 13.0%, up 0.9pp yoy (eNuW: 13.2%).
Upbeat Games adoption: Games contributed better than expected with billings
of EUR  31m (eNuW: EUR
25m) and sales of EUR 2.2m (eNuW: EUR 1.9m) driven by further additions to the
Games portfolio as well as user adoption with MAUs growing by 22% qoq to
22k (eNuW: 20k). Consequently, the ARPU stood at EUR 33.6 (vs. EUR 8.0 at
Lottery) highlighting the attractive user economics at Games.
Dynamic top-line: Q1 sales rose by 35% yoy to EUR  36.1m (eNuW: EUR  34.8m).
Based  on an average jackpot development, we expect a slight qoq sales
decline in Q2e (eNuW: EUR 34m; due to less user activity) before the  planned
expansion in the billings margin to above 15% (currently: 13%) should
unfold its posititve effect on sales from Q3e onwards (eNuW: EUR 38m in Q3e /
EUR 42m in Q4e).
EBITDA much better than expected: Q1 EBITDA came in at EUR 9.4m, +1% yoy
(eNuW: EUR 5.1m) despite heavy marketing expenses of EUR 13.4m (eNuW: EUR 14m),
but driven by higher than expected sales and lower than expected indirect
costs of EUR 3.6m (-20% qoq; eNuW: EUR 5.8m), as the majority of ramp-up costs
of the new social lottery will likely be incurred towards the end of the
year and not in Q1 and Q2.
Improved marketing efficiency: Costs per Lead decreased by 10% yoy to EUR 33
(eNuW: EUR 40), showing that customer acquisiton has become more efficient.
In sum, ZEAL accounted for 320k new registrations (+124% yoy; eNuW: 350k)
and grew their MAU in Lottery by 21% to 1.33m (eNuW: 1.26m).
Guidance well in reach: Management confirmed the guidance (see bottom
right), but based on our revised estimates, we expect a reach at the
upper-end of the guidance, due to the improved user base.
Therefore, we reiterate our BUY recommendation as well as ZEAL's position
in the NuWays' AlphaList
with an increased PT of EUR 53.00 (old: EUR 51.00), based on DCF.

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