Posted on: January 13, 2025, 07:27h.
Last updated on: January 13, 2025, 07:27h.
Shares of International Game Technology (NYSE: IGT) have shed a third of their value over the past year, but the sagging stock could benefit from some clarity from the Italian lottery — one of the company’s marquee clients.
Last Friday, Italy’s gaming regulator published request for proposal (RFP) documents, which Stifel analyst Jeffrey Stantial described as “modestly favorable, incrementally, for IGT.” He rates the stock a “buy” with a 12-month price target of $26, implying upside of more than 50% from today’s close. IGT’s contract with the Italian lotto is run through a joint venture with Allwyn and data confirm it’s an important contributor to 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” references the parts of IGT that will remain after the company merges its global gaming and PlayDigital with Everi and Apollo Global Mangement acquires the combined entity.
IGT Faces Competition for Italy Lotter Contract
IGT has held the rights to operate Italy’s lottery for more than three decades and while that could imply the company has a leg up in winning another bid, Flutter Entertainment (NYSE: FLUT) is expected to pursue the contract as well.
Dublin-based Flutter already has a footprint in Italy by way of a pending deal for Playtech’s (LSE: PTEC) Snaitech. In 2022, Flutter paid $2.2 billion for Italian lottery giant Sisal. Prior to that acquisition, Flutter’s PokerStars and Betfair were operational in Italy with significant 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 is an attractive market for gaming companies because it’s Europe’s largest wagering market outside of the UK and it’s the Eurozone’s third-largest economy behind only Germany and France.
IGT Could Have Some Advantages
It’s possible other bidders could emerge for the Italy contract and Flutter certainly represents credible competition, but IGT could have some advantages in terms of 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,” concludes Stantial.
The deadline for submissions is March 17, which the analyst believes could favor IGT as the incumbent because that might not be enough for rivals to formulate adequate, competing proposals.
