Intralot - Leveraged Minority, Positioning

All,

Please refer to our unchanged analysis here.

It’s been a long and profitable ride with Intralot. But as indicated in our last mail, we have been discussing exiting our position following the previously anticipated loss of the Malta contract. We consider this loss unfortunate for the 24s, since the ROW business, following the end of the contract in July, will be running LFCF negative as a result.

Q3 results:

- The call was boring. As usual, the company was rattling down its consolidated figures and as was already noticeable on the first call following restructuring, there were fewer and fewer probing questions, even though the company had just lost another major contract.

- Proportionate EBITDA is at €66.2m for the first 9 months and suggests the company really can reach above €100m EBITDA again. But of the €21.9m Q3 EBITDA €18.9m were from the 66% held US and only €3m from Europe. Going forward, the gains from NL, Taipei, Hamburg Chile and Croatia will at least be half offset by the loss of Malta, so the ongoing R&D/CapEx will still drag the ROW cash flow into the red.

25s inverse call:

- We have been asked about the 25s a lot. These bonds are structurally sr. on the biggest asset - the Inc. and have nothing to fear.

- However, unusually they are subject to an inverse schedule of call protection, where the bonds are now callable at par (with 10 days notice), then step up to 101 in September 22 and to 104 in October 24.

- Note that we do not have the documentation for this bond.

24s:

- We do not agree with the bonds knocking on 10% yield, but the driver for a widening that we had made out - the loss of the largest remaining international contract - has evaporated.

- Investors are now looking through to the sale or otherwise monetisation of the US division, which the market is more bullish on than we are. That is to say that we are certainly convinced of the value and attractiveness of the Intralot US assets. But a positive outcome for the 24s to warrant a 10% yield at 90c/€ needs to be really very positive.

Positioning:

- Whatever the impending US transaction, we are not fond of entering another opaque reporting cycle, based on a leveraged minority stake with a cost centre attached.

- In times where revenue and EBITDA are trending decidedly upwards it may not be the right thing to concern oneself with risks stemming Greek legal structures, or cash flows beyond interest coverage, but therein lies our D&A.

- We are therefore exiting our short in the name for the time being.

Please reach out to discuss,

Wolfgang