Zeal Talks a 30% Margin, But Not Its Official Line

Key Points

• Zeal’s CFO Behrendt is pretty confident they’ll hit a full-year EBITDA margin of about 30%, but the guidance says that’s unlikely somewhere between 25% to 27.8% sounds more realistic.
• The entire €20 million boost in revenue for 2026 comes from SevenCanyon, with no increase in the company’s lottery business.
• The HMRC line on paid prize draw entries carrying a 20% VAT might make life pretty tricky for SevenCanyon’s 21% margin.

Finance chief Andrea Behrendt told analysts that she was expecting Zeal to hit an EBITDA margin of about 30% by the end of the year but the company’s own guidance is a bit more cautious; a range of 25-28% is the official line. No explanation of the discrepancy in the call transcript either.

Revenue for 2023 was up 22% to €198.8 million a lot of that growth came thanks to SevenCanyon, a UK prize draw operator. Without SevenCanyon we’d have seen revenue growth of 16% as Behrendt confirmed on the call. SevenCanyon added nearly 30% to the €36.2 million boost in revenue, and that’s got us wondering about the bigger picture how it will affect the company’s margins, tax costs and the regulatory risks involved.

Lotteries Keep On Growing Even When The Jackpot Is Low

Lottery revenue was up 16% to €170.8 million billings rose 10% to €915.1 million, and Zeal picked up more than a million new customers for the first time in its history; that’s a 15% increase from 879,000. In the call Behrendt said the company managed this growth “despite a pretty subdued Eurojackpot environment” in the first nine months.

Games revenue was up 18% to €12.1 million users of their game went up to 35,000 from 28,000, and the Dream House Raffle is still growing fast with four houses drawn at average billings of €9 million. Its sister product, the Dream Car Raffle, had its first season in the third quarter, and they’ve already started a second one.

Chief executive Dr Stefan Tweraser said that the expansion into other products is working: “We’re expanding our revenue base and creating new opportunities for growth”, he said.

Where The €20 Million Revenue Increase Is Coming From

Zeal boosted its 2026 revenue guidance from €250 million to €260 million to a new range of €270 million to €280 million. Behrendt said the increase “just reflects the SevenCanyon contribution from July to December.” That means all €20 million of the upgrade comes from SevenCanyon but there’s no increase in the group’s core business forecast. The EBITDA guidance stayed the same at €70 million to €75 million.

It’s also worth noting that the company says presentation of revenue under IFRS has now been finalised but that’s all we get out of that. Management has also put SevenCanyon’s billings at around £99 million and its gross gaming revenue at about £30 million. And we also know they’ve recorded €10.5 million in revenue since Zeal acquired the business on 9 July.

Margin Declined, Q4 Margin Looks Thin Too

Zeal’s EBITDA margin decreased to 29.6% from 33.3% due to an increase in marketing expenses by 35% to €67.4 million. Its net profit fell by 5% to €32.2 million. The decrease in the margin was partly attributed to a tax benefit of €4.1 million reported in 2025.

Third-quarter EBITDA of Zeal stood at €19.9 million, when revenues were €77.0 million, thus providing the company with a margin of 25.8%. In 2025, the company earned €218.5 million in revenue, while EBITDA was €68.8 million, resulting in a margin of 31.5%. Based on the 2026 guidance, it means that its margin for the full year could be between 3.7 and 6.5 percentage points lower than in the previous year.

According to the current guidance, Zeal should earn between €11.3 million and €16.3 million in the fourth quarter’s EBITDA. During the call, the analyst from M.W.B. Research estimated an implied margin of 15% to 20% for the quarter. When asked if the decline in the margin is because of the increased marketing spending alone, Behrendt replied “Yes” and called it “profitable marketing investments”.

If Zeal sticks to its guidance, its full-year EBITDA margin will not be able to reach 30%. However, she didn’t give any explanation regarding her statement about the 30% EBITDA margin.

According to NuWays, a research firm, 2026 EBITDA of Zeal will amount to €79 million in its report dated November 5. It is significantly higher than the upper limit of the company’s guidance range. Despite such a high EBITDA estimate, the margin will only amount to 29% when taking into account the midpoint of the company’s revenue guidance.

By November 5, its share price had decreased by nearly a quarter. When analysts asked whether it plans to make share repurchases or special dividends this year, Behrendt said: “Nothing that I can share with you”. At the same time, she still maintained the company’s objective of mid-teens organic revenue growth in 2027.

UK Prize Draws: Few Regulations, but Some Regulations Exist

Zeal had planned to enter the market as early as March. The plans were revealed when Tweraser called the company’s “strong war chest”. The deal was made on 9 July. Zeal offered £33.8 million in cash, with the possibility of another £4.8 million payment. Most of the purchase was paid with a €40 million loan from Deutsche Bank.

According to Tweraser, the acquisition is part of the strategy. In his words, “It’s not an opportunistic deal”. Moreover, Tweraser claims that SevenCanyon “gives us immediate access to Europe’s largest market for prize draw offerings.”

SevenCanyon develops websites for prize draws under names such as 7days Performance, Redline Competitions and UK Carp Competitions. The management of the company stated that the business brought more than £10 million in EBITDA in the last financial year.

There are no requirements for a Gambling Act licence, because UK prize draws provide free entry besides paid tickets.

A voluntary code for the UK Government was published in November 2025. It covers only chance-based prize draws but not skill competitions. By 20 May 2026, all the operators that signed up to the code have to follow it. All other consumer protection, advertising and data regulations still exist. The code imposes restrictions on credit cards, allowing payments up to £250 a month and completely banning them in instant win prize draws.

The code says that the size of the UK prize-draw market is £1.3 billion per year with 7.4 million adults participating in it. It refers to the government-commissioned research of 2023, not the updated research of 2026.

According to Tweraser, the market “remains highly fragmented” with more than 400 operators. Prize draws “will continue moving towards greater regulation”. Moreover, according to him, “higher standards favour operators that can deliver high compliance and market-related expertise”.

The Lotteries Council did not share the same opinion about the code and claimed that “free prize draws continue to operate with no meaningful oversight”.

The VAT Question Hanging Over the Deal

Prize draw competitions may dodge the licensing rules under the Gambling Act, but they’re still fair game for HMRC when it comes to VAT. The taxman has made its stance on VAT a lot clearer in recent months. A Treasury minister let slip in February that paid entries are slapped with a standard rate VAT of 20% and that’s according to HMRC.

In July we heard from DrawHouse that the tax could knock operator profits by a chunky 25% to 30%. Some tax experts quoted by iGB reckon the current legislation doesn’t actually back up HMRC’s view and that’s a contentious point.

When they had an earnings call, one of the analysts asked Zeal if they’d got insurance to cover the potential VAT headache at SevenCanyon. Behrendt said VAT costs get treated as a non-contingency expense, i.e., they’re not actually counted as an expense in our profit and loss statement. And as for Zeal’s quarterly statement all it says is that they’re aware of possible tax and regulatory risks and are keeping an eye on them.

Deadlines and Tests Still Looming for Zeal

SevenCanyon’s earn-out payment has the potential to total £4.8 million. But the money won’t actually get paid for another six months, once the business has hit the targets set and its founders have moved on they’re due to leave within six months of the deal being completed anyway. An internal candidate has already been appointed to take their place.

HMRC has actually written to prize draw operators and made it clear they’re not happy about the VAT on paid entries.

Expert Analysis: A Footnote Needed for the Margin Story

We reckon Zeal has earned the right to its revenue growth headline, but its margin claim is a bit shaky on the numbers. They really need to spell out exactly how they think they’ll get to that 30% margin, or it’s going to be pretty hard for investors to compare it with what’s actually being said.

SevenCanyon reported a fairly respectable 21% margin in the third quarter, which is actually below Zeal’s group margin. All of which means that SevenCanyon’s contribution is eating into the overall group margin. Behrendt said the 30% was a target for SevenCanyon but they’ve got some way to go to get there.

HMRC’s VAT stance is now making that target look even tougher to hit. And even if it does still apply, it’s unclear how it will affect ticket sales at SevenCanyon. The company didn’t shed a lot of light on that when they had the earnings call. And even a parliamentary answer doesn’t carry the same weight as a court ruling, so this one’s still up in the air.

NuWays noticed that Zeal’s CEO and CFO went out and bought some shares in late September and that was at a time when the share price was hovering around €39.50. The next set of results will be the real test. Will Zeal get to that 30% margin or was it all just a bit of wishful thinking?