The increasing strength of IGT’s global lottery business during the COVID-19 pandemic and impending sale of the company’s Italian B2C gaming business will see lottery comprise 75% of its Adjusted EBITDA by 2020, according to Union Gaming analyst John DeCree.
In a research note diving into IGT’s 4Q20 financial results, which saw total revenue decline 15% year-on-year to US$885 million but lottery increase 11% to US$630 million, DeCree described the segment as the “shining star” in the company’s portfolio throughout the pandemic and noted that, “IGT’s business mix is shifting heavily towards lottery.
“We estimate in 2022 that Global Lottery will comprise 75% of IGT’s segment level Adjusted EBITDA, with the Global Gaming segment accounting for just 25%.
“The lottery business is showing strong growth trends in recent quarters and has proven resoundingly resilient during the pandemic.”
IGT’s 4Q20 results, published last week, included an 8% increase in sales of instant ticket and draw games globally and 11% increase in North America. By comparison, the company’s Global Gaming segment suffered a 46% decline in revenue for the quarter to US$255 million.
Gaming also fell from Adjusted EBITDA of US$115 million in 4Q19 to a loss of US$2 million, while Global Lottery reported a 17% increase in Adjusted EBITDA to US$313 million.
Based on increasing lottery exposure, DeCree has described IGT as a “bargain buy” for its lottery exposure based on the current price of shares, which are trading at just 7x Union Gaming’s pro forma consolidated EBITDA estimate of US$1.57 billion in 2022 (including the sale of the Italian B2C business for US$1.13 billion).
“We believe IGT is a compelling buy here given the strong growth fundamentals in the lottery business and the substantial discount at which the shares trade (7x) relative to the lottery peer group (14x),” De Cree said.
