Shares of International Game Technology (NYSE: IGT) have lost a third of their worth in the last year, yet the declining stock might gain from clearer information from the Italian lottery, a key client of the company.
Last Friday, Italy’s gaming authority released a request for proposal (RFP), which Stifel analyst Jeffrey Stantial characterized as “mildly advantageous, in small increments, for IGT.” He assigns the stock a “buy” rating, setting a 12-month price target of $26, suggesting an upside of over 50% from Monday’s closing price. IGT's agreement with the Italian lottery is managed via a partnership with Allwyn, and data indicates it significantly impacts IGT’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
"Disclosures from JV consortium partner Allwyn indicate the contract contributed €477M/€386M consolidated revenues/Adj. EBITDA to IGT in 2023, ~30%/20% of Global Lottery revenues/Adj. EBITDA and ~30% of estimated IGT pro-rata RemainCo Adj. EBITDA (IGT holds 61.5% economics in the operating JV),” observes Stantial.
“RemainCo” pertains to the segments of IGT that will continue to exist following the merger of its global gaming and PlayDigital divisions with Everi, while Apollo Global Management takes over the newly formed entity.
IGT Competes for Italy’s Lottery Agreement
IGT has maintained the rights to run Italy’s lottery for over thirty years, and although this might suggest the company has an advantage in obtaining another contract, Flutter Entertainment (NYSE: FLUT) is also anticipated to compete for the agreement.
Dublin-based Flutter already has a presence in Italy through an impending agreement for Playtech’s (LSE: PTEC) Snaitech. In 2022, Flutter acquired the Italian lottery powerhouse Sisal for $2.2 billion. Before that acquisition, Flutter's PokerStars and Betfair were functioning in Italy with a considerable market share.
“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,” adds Stantial.
Italy presents an appealing opportunity for gaming firms, as it stands as Europe’s biggest betting market after the UK, and ranks third in the Eurozone's economies, following Germany and France.
IGT May Offer Certain Benefits
Other bidders may arise for the Italy contract, and Flutter clearly poses serious competition, but IGT might hold certain benefits in maintaining the contract.
"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,” concludes Stantial.
The submission deadline is March 17, and Stantial thinks this could benefit IGT as the incumbent, as it may not allow competitors sufficient time to create suitable, competing proposals.