Global gaming equipment manufacturer IGT International Game Technology Plc (IGT) and Scientific Games Corp must brace for headwinds as a result of the political developments in Italy.
GGRAsia reported that the two gaming companies must brace themselves for the volatility that the proposed extension of an Italian government-issued lottery scratch-card concessions entails.
Equity research firm Telsey Advisory Group LLC said in its Wednesday’s note that the cash flow of IGT and Scientific Games, which both have respective stakes in the lottery, will be affected should Italy decide to bring forward the date of the concession fee.
Telsey estimated the concession fee to be around €800 million (US$944 million).
“We believe the currently proposed decree is a long-term positive for both names and this volatility should be viewed opportunistically,” David Katz said, according to the news report.
Records showed that debt of IGT and Scientific Games stood at US$7 billion and US$8.18 billion, respectively as of June 30. IGT controls majority of the Italian lottery scratch-card concession with a 64 percent stake while Scientific Games has 20 percent.
The remaining 16 percent is held by a body representing a local tobacconists, according to Telsey.
On the flipside, Telsey pointed out that the near-term risk of lottery scratch card being discontinued will be taken out due to the proposed nine-year extension.
“In the case of IGT, expectations had been that the company would generate approximately US$500 million free cash flow [group wide] in 2018 to reduce leverage after making only marginal progress over the past two years,” Katz said. “Should the [Italian] decree be confirmed, the company’s leverage would remain at the current level [4.2x], which delays the prospects for alternative capital allocation initiatives.”
The analyst added: “The positive perspective is that the uncertainty around a rebidding process, new terms and new structure would be mitigated and the company would not have any rebidding processes until 2020, when the current extension of the New York lottery expires.”
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