Casino suppliers tussle for less floor post virus: note
Possible reduction in the amount of space available for casino operations in the aftermath of the Covid-19 crisis might put fresh revenue pressure on casino technology suppliers, says a Tuesday note from Union Gaming Securities LLC.
Referring to those markets that had a lengthy period of shutdown, analysts John DeCree and Sam Ghafir wrote: “We fear that less floor space post reopening will lead to incrementally more competition for said floor space and hurt supplier pricing power even further.”
They added: “While the market largely expects reduced product sales, the risk to leased fees and participation rates is still unclear.”
The commentary on the general outlook for suppliers was mentioned in a note more specifically about casino slot machine and lottery services supplier International Game Technology Plc (IGT), following its first-quarter earnings announcement on Monday.
IGT posted a net loss of nearly US$248.3 million for the first quarter of 2020, compared with a US$40.3-million profit in the corresponding period a year earlier. The firm said the result for the period included a non-cash goodwill impairment charge of US$296 million.
Union Gaming noted on the prospects for the supplier: “With casino operator budgets now constrained, IGT’s management has taken on multiple initiatives to preserve cash and weather the storm.”
The analysts noted IGT had reduced its average monthly fixed costs and discretionary capital expenditure by “20 percent-plus” to US$185 million from US$235 million prior to the Covid-19, resulting in approximately US$500-million of total savings in 2020.
They added they were “confident” the measures announced by IGT in combination with the group’s US$2.2-billion of liquidity “should provide ample resources to weather the storm and cover its modest near-term debt maturities.”
On May 13, IGT had announced amendments to its revolving credit facilities agreement and term loan facility agreement, including provisions relating to the Covid-19 pandemic. The firm is currently barred from distributing dividends and carrying out share repurchases through to June 30, 2021.
Sector-wide for the gaming suppliers, Union Gaming observed: “With capital budgets of casino operators strained due to the combination of rising leverage and the prospect of prolonged capacity restrictions imposed by governments/regulators, the current gaming supplier outlook is about as clear as mud.”
Casino jurisdictions and operators in Asia Pacific have already flagged so-called social distancing measures coinciding with either resumption of paused business or ramping up of what has been much-curtailed business.
Bloomberry Resorts Corp, operator of the Solaire Resort and Casino in the Philippine capital Manila, “aims to restart with approximately 20 percent of its gaming capacity once the lockdown is lifted” in Metro Manila.
Macau adopted social-distancing steps on its casino floors after a 15-day shutdown in February to stop the spread locally of the novel coronavirus and its associated Covid-19 infection. Such steps have also been proposed for bricks and mortar casinos in the United States.
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