U.S.-based brokerage Telsey Advisory Group LLC maintains a positive outlook on casino equipment and lottery services supplier Scientific Games Corp, but it now expects the firm to report lower earnings before interests, taxation, depreciation and amortisation (EBITDA) for full-year 2019.
Telsey Advisory Group said in a Tuesday note that it was adjusting its estimates “to reflect a more realistic view of equipment spending trends by casino operators”. The memo followed the announcement of Scientific Games’ second-quarter results last week. The casino equipment supplier said its unaudited second-quarter gaming revenue decreased by 9.3 percent year-on-year to US$427 million, and the firm’s consolidated EBITDA fell by 1.5 percent year-on-year to US$335 million in the period.
“Our 2019 estimated EBITDA moves from US$1.34 billion to US$1.326 billion while our 2020 estimated EBITDA goes from US$1.406 billion to US$1.355 billion,” Telsey Advisory Group said in its Tuesday note, noting that it maintained an “outperform” rating for the casino supplier firm.
The brokerage said it was modeling Scientific Games’ slot replacement sales for this year to be “just 13,500”, a tally that is lower than the 16,185 units sold in 2018, with pricing to “remain flat to slightly negative”. Market-wide in the North America, the brokerage expects replacement units to come in “closer to 60,000” in the full-year 2019.
“We expect tribal replacements to remain healthy but for corporate buyers to remain slow for the remainder of 2019. We also continue to assume modest growth in international slot sales in 2019,” wrote analysts Brian McGill and Alec Cummings.
The brokerage also assumed “slight pressure” on Scientific Games’ slots installed base going forward, as casino operators continue to cut costs by reducing slot participation expenses. Scientific Games’ total installed base for the second quarter stood at 66,908 units, of which half of them were installed in international markets.
The brokerage assumes a positive outlook on Scientific Games’ free cash flow for this year.
“The outlook remains positive on a yield basis, given the stock price. We continue to believe the company will report strong cash flow in 2019, which should help it to further delever. The company noted that it remains on schedule to achieve its target leverage of 5.5 times by the end of 2020 (currently at 6.5 times),” said the analysts.
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