Shares in global gaming giant Scientific Games are “positioned to work well” in the second half of the year following the company’s surprisingly strong 2Q20 financial results last week.
According to a note from Union Gaming analyst John DeCree, Scientific Games – which saw its stocks plummet during the early days of the crisis from a high of US$30.24 on 12 February to just US$4.71 by March – was the “canary in the coal mine for the broader COVID-19 sell-off across the gaming industry as investors fled the most levered names first.”
However, dire early predictions have proven to be unfounded with the company’s diverse portfolio providing strong upside in the most recent quarter, with Scientific Games reporting positive Adjusted EBITDA of US$121 million and Free Cash Flow of US$5 million.
DeCree points to a range of factors in the Scientific Games recovery story, including the durability of lottery which declined only 5.8% year-on-year in 2Q20 but has already seen a 20% upward trend over the past month.
Online gaming arm SciPlay has also countered the effects of COVID-19, providing 41% year-on-year revenue growth in Q2, while its land-based slot machine business has recovered faster than expected.
“Coin-in at reopened casinos is trending flat to up year-on-year,” DeCree said.
“While there is some pent-up demand and stimulus dollars driving this trend, the outlook for the slot segment is much less dire than initially feared. In fact, with most casino amenities, F&B outlets and table games currently closed or constrained, casino operators are relying heavily on slot machines.
“One could argue the importance and ROI of the slot machine is being proven once again.”
Union Gaming has subsequently raised its price target for Scientific Games from US$20 to US$27. Shares were at US$18.53 at market close today, up 7.48%.
“We expect current trends to continue improving barring another large scale shutdown,” De Cree said.
RelatedPosts
