Italy's doubts leading analysts to exercise caution over IGT
Swap That Coin: IGT Faces Rival Bid for Italian Lottery Deal, Nudging analyst's View on Stock
The Italian lottery landscapes are heating up with a less-than-certain contract in play, triggering one analyst to shave a buck from his lookout on International Game Technology's (IGT) share price.
In a memo to investors on April 14, Jefferies Equity Research analyst David Katz penned down, "Though the lottery biz might be one of our stable bets, the hair-raising Lotto contract bid, coupled with the slot biz spin-off to Apollo Management, still haunt IGT's shares."
The gist here is that David is concerned about the upcoming Lotto contract competition and the split of IGT's slot machine business with Apollo Management.
David reconsidered his price target on IGT stocks from a cool $19 per share to an equally chill $18, still recommending a Hold. At the time, IGT shares were floating around $15.61 a pop.
While he kept his forecast for first-quarter revenues steady at $637.1 million, David trimmed his cash flow prognosis to $257.9 million from a heftier $296.6 million. He also chipped off a Benjamin from his full-year revenue prediction and made a minor reduction in his cash flow guesswork.
In his own words, David pointed out that IGT has been cosied up with the Italian lottery business for a whopping 35 years. However, Sisal, Flutter Entertainment's division, has cheekily stepped into the fray, thanks to its presence with the Superenalotto contract and aspirations of building its lottery and digital cross-marketing territory in Europe.
David predicts that IGT's chances of a fruitful Italian renewal are slick, given that their past bids fell in the billion-dollar range, including additional capital investment required.
As for the Apollo transaction, slated to close in September, David noted that the deal will be a money-making machine once wrapped up, although the timeframe for closing in the current situation remains uncertain.
The Jefferies analyst, therefore, remains optimistic about IGT stocks, suggesting they should fetch as much as four turns higher at seven to nine times cash flow. Currently, they trade at a snickering 5.2 times EBITDA.
"Although it's a long shot, IGT shares could see a downward spiral should they lose the bid, and an uptick should they win," David concluded.
Insights: The Italian lottery contract bid is currently in its final stages between IGT (via LottoItalia) and Flutter Entertainment’s Sisal division, with the submission deadline having passed on March 17, 2025. The winning bid will be determined by a 60/40 weighting on economic offers and technical/investment proposals, with an emphasis on modernization commitments, such as terminal upgrades and security standards. The selected operator must pay a total concession fee in three installments: €500 million upfront, €300 million upon operational handover in November 2025, and the remainder by April 2026. IGT is under tremendous pressure to retain the concession, as it contributes over €20 billion in annual ticket sales and represents 93% of the market. Flutter’s Sisal has partnered with Scientific Games to solidify its bid. A decision on the matter is expected in the coming months.
- The fierce competition for the Italian lottery contract between IGT and Flutter Entertainment's Sisal division could potentially influence the price of IGT shares.
- David Katz, an analyst from Jefferies Equity Research, trimmed his price target on IGT stocks from $19 to $18 per share, despite being a regular investor in the lottery industry.
- The upcoming Italian lottery contract decision may significantly impact IGT's cash flow, as the chosen operator must pay a total concession fee of €500 million upfront and the remainder by April 2026.
- The ongoing bid for the Italian lottery contract, along with the split of IGT's slot machine business with Apollo Management, has raised concerns among investors, causing uncertainty in IGT's share price.
