IGT is the world leader in gambling. The company recently revealed that it is looking for a “strategic alternatives” for its Global Gaming and PlayDigital divisions – two of the company’s top-performing divisions over the past year – with the goal of creating “everlasting sustainable value.”
Analysis of strategic alternatives
The group’s global gaming revenue for the first quarter of 2023 increased by more than 21% year-on-year to $389 million. The revenue of the gambling and slot sites not on gamstop along with digital segments a year ago was $47 million and has grown to $55 million. The first three months of the year generated $23 million in net income for shareholders, with revenue up nearly 1% to just over $1.06 billion.
It would seem that the company is full of cash and has an increasingly powerful credit profile. From January 1, 2023 through the end of the first quarter, net debt fell from $5.15 billion to $5.12 billion as the company started the year with “significant cash flow generation and further improvement” in its credit profile.
This process will be slow and the first step will be to evaluate the best opportunities that can offer a real growth opportunity for the aforementioned divisions. Among the strategies that are expected to be considered are the following: sale, merger or spin-off, which could help to better retain and increase investment in these sectors of the company.
While a final decision has yet to be made, they have already begun planning a review of the alternatives that IGT has, and it has become clear that while the process may seem compelling in terms of results, they are not guaranteed.
Marco Sala explained how the changes work, which, in theory, are the basis of this new structure that will appear on the horizon:
“Over the past three years, IGT has invested in developing a long-term strategic approach by reorganizing its pivotal product verticals, monetizing minor assets, reducing structural costs and drastically boosting its credit profile.”
Current problems they face
In mid-2022, IGT’s annual revenue forced the company to make economic adjustments due to a 2% drop in revenue in the second quarter. The drop was due to the company’s external agent, which has always been difficult to predict: the performance of the lottery sector fell by 11% and heavily affected IGT.
The result was disastrous, with a 7% loss in 2022 operating profit alone. On the other hand, the lottery sector suffered 23%, and this is one of the main reasons for the restructuring, which could compensate for the losses of last year and find a plan of action in case a new problem arises.
Vince Sadusky, CEO of IGT, is confident that the strategies that will be proposed can be fruitful based on previous results:
“IGT is a global leader with extensive experience in lotteries, land games, e-gaming and sports betting. We remain focused on achieving our growth goals and multi-year goals set last year as we conduct this review and assessment of strategic alternatives.”
Undoubtedly, IGT is facing a serious problem that needs to be addressed in the best possible way. It is expected that in the coming months the result of the evaluation of proposals for the presentation of a program of actions that the company should take to compensate for the previous year’s losses will be announced.
A forecast to near future
IGT PlayDigital will bring its compelling portfolio to the growing US sports betting market with its PlaySports solution. IGT PlaySports and its skilled team of trading advisors is one of the most widely deployed B2B sports betting solutions in the US. The company will also showcase the award-winning CrystalFlex gaming and betting terminal and the high performance PeakBarTop cabinet with sports betting capabilities.
So ultimately, IGT can either sell their top assets (presumably at a premium) or spin them off (in which case they could get a higher share valuation after being released from the mediocre Global Lottery business performance) or…do nothing but is already doing.
Encouraged by management’s claim that the intrinsic value of the leading activities in the IGT market and the diversified cash flow profile are not currently taken into account in share price and they hope that any action by management will help push the share price even higher. Again, when you consider that IGT shares are trading at almost 26 times earnings today, but earnings are expected to rise by 19% or less withing the next coming years, IGT shares actually look pretty valued – even slightly overpriced.