Nov 22, 2023 Newsdesk Latest News, Top of the deck, World  
Fitch Ratings Inc forecasts Light & Wonder Inc’s earnings before interest, taxation, depreciation and amortisation (EBITDA) leverage will decline to 3.7 times this year, from 4.3 times at the end of 2022.
The casino equipment and online games provider’s EBITDA leverage is then likely to fall to 3.3 times in 2024, “and decline further over the forecast horizon,” said the ratings agency in a Tuesday report.
Fitch’s forecast is based on its expectation of “EBITDA growth from continued strength” in Light & Wonder’s gaming segment, “helped by machine sales, both replacement and expansionary,” as well as from improved performance in the firm’s gaming operations, systems and table products, its iGaming segment and its digital games business SciPlay.
In October, Light & Wonder completed the deal to acquire the 17 percent of SciPlay that it did not already own. That acquisition “added a half turn” to Light & Wonder’s leverage, stated Fitch.
Nonetheless, the institution said it believed Light & Wonder’s credit profile “remained consistent” with a ‘BB’ rating, “due to robust free cash flow generation, strong liquidity and still-conservative leverage”. The gaming supplier’s rating outlook is ‘stable’.
“The continued momentum of Light & Wonder’s gaming equipment and systems cash flows in 2024, coupled with stable digital cash flows, will allow Light & Wonder to keep its EBITDA leverage metrics in 2023 and 2024 consistent with ‘BB’,” it added.
According to Fitch, the casino supplier “still has about US$200 million … available under its 2022 share repurchase programme and though acquisitions currently fall low on its priority list in terms of capital allocation, the company has the ability to de-lever back within its targeted net leverage band of 2.5 times to 3.5 times, quickly.”
The ratings agency expects Light & Wonder’s aggregate revenue to “increase approximately 14 percent in 2023,” from US$2.51 billion in 2022, “and taper to low double digits and high single digits over the forecast horizon.”
Light & Wonder’s revenue in the nine months to September 30 this year was just above US$2.12 billion, a 16.4-percent increase from a year ago. Adjusted EBITDA for the period stood at US$815 million, up 25.8 percent year-on-year.
Fitch expects the company’s free cash flow generation and margin to reach approximately “US$300 million and 11 percent, respectively,” in 2023, “thanks to stronger EBITDA, reduced interest expense and reduced capital intensity following lottery’s divestiture”.
The ratings agency also expects a majority of free cash flow “to be allocated toward repurchases, tuck-in acquisitions to support its iGaming segment and reinvestments within the business”.
Light & Wonder disinvested from a legacy lottery business in 2022 and from a sports betting business in 2021. The group completed in May this year a secondary listing on the Australian Securities Exchange.
Australia could be a “bellwether” for Light & Wonder to “scale successful games globally,” suggested Fitch, adding that the gaming supplier “has been able to expand its share in the region”.
It added: “Asia is another focus area for the company, with Philippines, Singapore and the surrounding markets driving improved [gaming machine] ship shares.”
In an interview with GGRAsia in September, Matt Wilson, president and chief executive of Light & Wonder, said the land-based casino market in Asia was “strategically very important” for the company, with the group planning to increase its presence in the region.
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