Brokerage JP Morgan Securities expects that gaming equipment and content provider Light & Wonder Inc will “exceed” by 2025 a US$1.4-billion target for annual earnings, before interest, taxation, depreciation and amortisation (EBITDA). The goal had been set in 2022 by the company’s management.
“Light & Wonder will exceed its 2025 EBITDA target of US$1.4 billion,” said the institution in a Tuesday note, adding that its estimates reflect a 2 percent to 5 percent upside to consensus for the firm’s financial years 2023 to 2025.
Light & Wonder’s EBITDA result for 2025 is anticipated “largely on the back of strong performance from the land-based gaming division,” wrote analysts Don Carducci, Michael James, and Joseph Greff.
JP Morgan initiated coverage of Light & Wonder on Tuesday, with an “overweight” recommendation.
Light & Wonder reported revenue of US$731 million for the third quarter of 2023, up 12.8 percent from the prior-year period. The company’s third-quarter consolidated adjusted EBITDA were US$286 million, up 21.7 percent year-on-year.
Light & Wonder completed in May last year a secondary listing on the Australian Securities Exchange. The firm’s primary listing remains on Nasdaq in the United States.
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 group, with plans to increase its presence in the region. “We’re in the process of expanding our facilities in the Philippines,” he stated.
Mr Wilson also noted that Light & Wonder was comfortably on the way to achieving annual EBITDA of US$1.4 billion by 2025.
According to JP Morgan, the land-based gaming division will be the “key driver” for Light & Wonder’s EBITDA growth.
“Early performance from the new Dragon Train family of games [in Australia] demonstrates good early execution,” stated the brokerage.
Light & Wonder launched in August the “Dragon Train” title, which it said was “developed specifically with the Australian player and customer in mind”.
“The recently launched family of games in Australia gives us confidence in the direction of travel for the company to achieve similar growth in the much larger U.S. profit pool,” said the JP Morgan analysts.
“This family of games has lifted Light & Wonder’s average turnover ratio from 0.55 to 0.76 in New South Wales, and 0.82 to 1.00 in Queensland,” they added. “Dragon Train will reach 8,000 games installed across” the two Australian states “by financial year 2025,” from over 1,700 in fourth-quarter 2023, “presenting over US$100 million of incremental gaming revenue in New South Wales and Queensland alone”.
JP Morgan also expects Light & Wonder’s free cash flow (FCF) generation to “inflect higher” following “divestment and de-gearing” of the group’s balance sheet, after the sale of the company’s lottery and sports-betting operations.
The group exited the lottery business in 2022 and sold a sports betting business in 2021.
“Third-quarter 2023 was the first quarter Light & Wonder hit its FCF/EBITDA conversion target; we expect further improvement from here,” stated the analysts.
