Shares of International Game Technology (NYSE: IGT) have lost a third of their value in the last year, but the ailing stock could benefit from some clarity from the Italian lottery, one of the company’s marquee clients.
Last Friday, Italy’s gambling regulator sent request for proposal (RFP) documents that Stifel analyst Jeffrey Stantial described as “modestly favorable, incrementally, for IGT.”
He rates the company as a “buy” with a 12-month price objective of $26, representing a gain of more than 50% from today’s closing.
IGT’s contract with the Italian lottery is managed through a joint venture with Allwyn, and figures show that it is a significant contributor to IGT’s adjusted earnings before interest, taxes, depreciation, and amortization.
According to JV consortium partner Allwyn, the contract generated €477M/€386M in consolidated revenues/Adj. EBITDA for IGT in 2023, accounting for approximately 30%/20% of Global Lottery revenues/Adj. EBITDA and approximately 30% of estimated IGT pro-rata RemainCo Adj. EBITDA (IGT owns 61.5% of the operating JV).
“RemainCo” refers to the components of IGT that will remain once the business merges its global gaming and PlayDigital divisions with Everi, and Apollo Global Management acquires the merged organization.
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IGT faces competition for the Italy lottery contract
IGT has had the rights to manage Italy’s lottery for over three decades, which may give the company an advantage in winning another bid, but Flutter Entertainment (NYSE: FLUT) is also anticipated to pursue the contract.
Flutter, based in Dublin, already has a presence in Italy through a prospective partnership with Playtech’s (LSE: PTEC) Snaitech. In 2022, Flutter paid $2.2 billion for Sisal, the Italian lottery behemoth. Prior to the transaction, Flutter’s PokerStars and Betfair held significant market share in Italy.
“While lottery sits outside of FLUT’s strategic focus, cross-sell rates of Superenalotto lottery players to OSB/iCasino have been attractive, and we believe FLUT management perceives the Lotto contract as primarily additive to the existing Superenalotto contract,” summarizes Stantial.
Italy is an appealing market for gaming companies since it is Europe’s largest gambling market outside of the United Kingdom and the Eurozone’s third-largest economy, trailing only Germany and France.
IGT May Have Some Advantages
Other bidders for the Italy contract may arise, and Flutter certainly represents real competition, but IGT may have an advantage in retaining the agreement.
“While the scoring matrix ascribes a higher weighting to price than the European (50%/50%) or U.S. (30%/70%) average, this compares to 70%/30% in the prior Lotto RFP (which we think the buyside was anchored to) with the slightly higher technical weighting benefiting IGT given incumbency, deeper lottery operator experience, and tech ownership,” says Stantial.
The deadline for submissions is March 17, which the analyst believes may favor IGT as the incumbent because it may not be enough time for competitors to develop appropriate, competitive offers.
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