Following the “profound change” undergone by the global gaming equipment and technology industry over the past two years on several merger and acquisition deals, Scientific Games Corp could on the longer run “emerge as the technological industry leader,” says a new report by Telsey Advisory Group LLC, released on Monday.
“The consolidation and resulting accelerating convergence presents compelling opportunities with Scientific Games as the leader in technology offerings,” stated the U.S.-based brokerage. “With the combination of Scientific Games, Bally Technologies Inc, Shuffle Master Inc and WMS Industries Inc into a single entity, the breadth of content, hardware, software and technologies should be vast,” wrote analyst David Katz.
U.S.-based Scientific Games in November completed the acquisition of fellow industry slot machine and casino floor management system supplier Bally Technologies in a deal valued at US$5.1 billion.
Scientific Games, initially a lottery equipment and management provider, purchased top-four U.S. slot supplier WMS Industries in 2013. Also in that year, Bally Technologies acquired casino equipment company SHFL Entertainment, known as Shuffle Master, for US$1.3 billion.
Mr Katz added: “We view this company [Scientific Games] as having the most compelling convergence opportunities in the sector, but also the highest amount of product redundancy, which should evolve over time.”
He warned of some short-term challenges for Scientific Games. “Our view is that although this is the right management team with the right strategy to lead the company through a complex integration and to create long term value by leading the industry technologically, the limited near term operating visibility and debt burden should temper the performance of the shares,” he wrote.
Telsey’s current price target on Nasdaq-listed Scientific Games is US$16. The firm’s shares closed at US$15.36 on Monday, up by 0.92 percent.
The Telsey report also discussed the growth potential of IGT Plc. That firm’s shares, with a price target of US$20 by the brokerage firm, closed at US$17.96 on Monday, down by 0.72 percent. The firm trades on Nasdaq.
The merger of U.S.-based International Game Technology and Italy’s GTech SpA into IGT – completed in April – makes sense, but “there are a few important complexities”, the Telsey report stated.
“From a big picture perspective, the newly formed IGT presents the combination of a stable lottery business with a potential turnaround of a leading slot business and adds a very productive interactive business as an added bonus,” Mr Katz said. But he cautioned about a “challenging turnaround” of the firm’s gaming machine business.
“Our checks suggest the right strategies are being deployed thus far, although turnarounds in the slot business historically take 24 months. While the company could generate a high cash yield, we believe this is approximately 18 months away and we remain conservative pending increased confidence in our forecast.”
While Mr Katz highlighted the long-term attractiveness for investors of both Scientific Games and IGT, he cautioned over the near-tem risks from high leverage, limited earnings and cash flow visibility, which could result in share price volatility. On the short term, Global Cash Access Holdings Inc “has the clearest path to value creation”, he stated.
Las Vegas-based Global Cash Access acquired Multimedia Games Holdings Co Inc for US$1.2 billion in December last year. Global Cash Access was originally focused on the supply of cash processing technology and related services to the gaming industry, but with the acquisition it expanded its scope into supplying systems, content and electronic gaming units for casinos.
“We view the combination of Global Cash Access with gaming machine company Multimedia Games as a financially compelling story with a clear path to value creation,” Telsey said. “The operating synergies should be achievable in the short term, in our view, while the pressures of leverage and complexities are more modest than other names in the sector.”
The brokerage firm has a US$14 price target on Global Cash Access shares. That is almost double its current market value – the firm’s Nasdaq-traded shares closed at US$7.73 on Monday.
Aug 01, 2017Sponsored content Aristocrat Leisure Ltd strives to lead the gaming industry in creating combinations of innovative cabinets and games that really entertain. Its game and cabinet creations are designed to help operators cater to all types of players and gaming floor segments. “Our global teams of...
Aug 23, 2017A huge tropical storm on Wednesday – with speeds of up to 165 kilometres per hour (103 mph) according to the local weather bureau – brought damage to some Macau casino resorts as well as flooding...
Aug 11, 2017Macau’s traditional gaming zone on downtown peninsula...
Jun 27, 2017Management at two major casino venues in the Philippine...
Nov 23, 2016Hong Kong-listed casino equipment supplier Paradise...
Oct 27, 2016As Studio City – the US$3.2-billion, 2015 addition to...
May 26, 2016Macau’s pacapio Chinese lottery game will celebrate its...
Number of dealers in Macau's gaming industry as of the second quarter of 2017