The market’s downward pressure on the share price of gaming and lottery supplier International Game Technology Plc (IGT) was probably an “overdone” response to recent events, said a Tuesday note from Deutsche Bank Securities Inc.
By the end of Tuesday trading in New York, IGT’s stock stood at US$25.64 per unit, a 16.2-percent decline from a high point for 2018 of US$30.59 reached on May 14, according to Bloomberg data.
“We believe the move is overdone,” wrote analysts Carlo Santarelli and Danny Valoy.
They added: “We attribute the weakness to the following, in no specific order: 1) the secondary offering of 13.2 million [IGT] shares; 2) concerns around the euro; 3) concerns around Italian regulation given government uncertainty; and 4) a more trading-oriented shareholder base.”
On May 21, IGT had reported first-quarter results that beat market expectations, with earnings before interest, taxation, depreciation and amortisation (EBITDA) up 18 percent, on higher revenue.
But since then, political uncertainty in Italy – where IGT has a large lottery and gaming machine business – has had the potential to lead to tighter gaming regulation according to some commentators, and has also had an impact on the value of the euro currency, in which IGT denominates a portion of its earnings.
“For every EUR0.01 move [softening] in the euro, relative to the U.S. dollar, IGT’s annual EBITDA is impacted by US$9 million,” noted Deutsche Bank in its Tuesday memo.
But it added: “This is purely a translation impact and has no impact on cash/cash flow. Further, we would note that roughly half of IGT’s debt is denominated in euros, and as such, the face value of debt declines by approximately US$35 million for every EUR0.01 the euro moves lower.”
The same day as IGT’s first-quarter results, De Agostini SpA, IGT’s majority shareholder, announced a so-called “variable forward transaction” relating to some IGT shares. Deutsche Bank had said shortly after that announcement that the share exercise appeared to have had some impact on investor outlook for the firm.
But the financial institution noted in its Tuesday update that IGT’s current valuations in relation to industry peers on “both a free cash flow and enterprise value/EBITDA basis, represent a very compelling risk/reward scenario, and one in which we believe meaningful upside exists.”
