Gaming and lottery provider International Game Technology Plc (IGT) might see a “rapid deleveraging” and reinstate the company’s dividend in the third quarter of 2021, says a note from analyst John DeCree of Union Gaming Securities LLC.
The assumption is based on the brokerage’s estimate that IGT will generate more than “US$450 million of free-cash-flow in both 2021 and 2022.”
“Prior to Covid[-19], IGT was just beginning to hit its cash flow stride after some heavy capex years that really weighed on the equity,” wrote Mr DeCree in a Friday note, adding that the pandemic had “forced the entire sector to reign in capex.”
IGT last week reported revenue of nearly US$981.5 million for the third quarter of 2020, up 54.0 percent from the preceding quarter. The figure was still down 14.9 percent from the prior-year period. Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) more than doubled from the second quarter, to US$354.1 million.
The casino supplier said it delivered US$220 million in positive free cash flow in the third quarter, putting the company on track to achieve its “2020 temporary cost-reduction targets.”
Union Gaming said that while it recognised the “potential risk” over the next two quarters due to a “surge” in Covid-19 cases, IGT’s lottery business had “already proven durable during the initial shutdown” seen in several gaming jurisdictions.
“Our above-consensus 2022 estimate assumes global lottery EBITDA returns to 2019 levels and global gaming EBITDA recovers about 90 percent,” said Mr DeCree.
He added: “We are still cautious on a full slot recovery, but [IGT’s] management reiterated US$160 million of sustainable cost savings in the gaming segment throughout 2021 and into 2022, which gives us comfort in our estimate even if the slot recovery lags.”
Analysts Carlo Santarelli and Steven Pizzella of Deutsche Bank Securities Inc suggested in a recent memo that while casino operators’ capital expenditure budgets “had been trimmed, replacement activity and slot spend … are firming and as such, barring casino closures, we believe the [IGT's] gaming segment can continue to improve on a sequential basis.”
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