GGRAsia – Scientific Games already working Bally synergies: analyst

Scientific Games already working Bally synergies: analyst

Jan 09, 2015 Newsdesk Industry Talk, Latest News

Scientific Games Corp “is already executing on some synergies” following the acquisition of Bally Technologies Inc, said brokerage firm Wells Fargo Securities LLC.

Scientific Games, a U.S.-based specialist in lottery equipment and management, in November completed the acquisition of slot maker Bally Technologies, based in Las Vegas, in a deal worth US$5.1 billion.

“The quick realisation of synergies is necessary for Scientific Games to generate cash and de-lever swiftly,” a group of Wells Fargo analysts led by Cameron McKnight wrote in a report on Thursday.

They added: “We believe Scientific Games is already making progress with its synergy programme. Checks suggest Scientific Games began streamlining its cost structure in mid-December. We believe decisions on headquarters, headcount and production facilities could occur in Q1 and serve as positive short-term catalysts.”

Scientific Games has said it expects synergies arising from the integration of Bally Technologies will lead to US$235 million in cost savings. The firm plans to realise about 80 percent of those savings by the end of 2015, Wells Fargo said.

“While we believe the roughly US$130 million of headcount-related synergies is tangible, there is less visibility regarding the remaining US$105 million of non-headcount related synergies,” the brokerage noted.

Well Fargo downgraded Scientific Games from ‘Outperform’ to ‘Market Perform’ but maintained its US$12 to US$13 valuation range.

“We see balanced risk/reward here given generally low near- to medium-term visibility,” the analysts said. “If Scientific Games can execute on its synergy targets and gaming equipment industry fundamentals stabilise, we see a potential path to US$20/share.”

But they cautioned: “However, with 7x net leverage, we also see a potential case for US$7/share on any potential setbacks.”

Wells Fargo advised investors to move to the sidelines until the investment case and fundamental outlook becomes clearer, “which could occur late 2015”.