Inside Asian Gaming

April 2014 | INSIDE ASIAN GAMING 39 “IGT has such a large existing share of [casinos’] floors. Today, there are more choices out there at lower price points with nearly matching performance levels. They can buy fewer IGT games,” said Joel Simkins of Credit Suisse. “The macro weakness for the equipment sector is well understood given weak domestic GGR trends and few new major casino openings/expansions for new product sales,” Union Gaming Research said last month in a note to investors. “IGT’s gaming operations segment is more exposed to weak gaming play levels versus competitors given the number of games on variable fee. In our view, the company’s game operations performance is reflective of IGT’s game content issues and having put limited capex in the segment, which has led to reduced floor space and yield pressure. The product sales picture the next couple years will be challenging.” Mr McGill added, “Even if regional markets do begin to improve and grow revenues again, we would not expect IGT to see a material impact in yields. Withmore competition in the participation segment and the difficult task of trying to replace a hit we expect to see the number of premium games continue to decline going forward.” So it’s not surprising, especially given the high-profile M&A activity in the US supply sector over the last year, to hear analysts talking about IGT as a prospective acquisition for any number of buyers enticed by the company’s sizable free cash flow ($440 million- plus as of the first quarter) and its low debt ($2.1 billion) relative to EBITDA ($778 million in Q1). And if analysts are right about the company’s dimming prospects, and with the stock (NYSE: IGT) off some 35%, as of this writing, from its 52-week high, the level of interest could be growing. “Private equity has shown more interest in the suppliers than previously assumed,” said Mr Simkins. “One of the bull case arguments for IGT shares is that it could unlock significant value from this business via a [spin-off] or other initiative.” IGT is more than merely cheap. The company has emerged as a leader in the social gaming space via its 2012 purchase of Double Down Casino—a $500 million deal roundly criticized byWall Street at the time. The interactive division delivered a 41% increase in revenue in the first quarter to $74.6 million. “We credit management for making progress with this business in recent periods,” Mr Simkins said. “IGT is one of the leaders in the rapidly growing social gaming business.” The company also has secured a new multiyear licensing agreement with Sony Pictures for use of the“Wheel of Fortune”brand across all platforms—slots, online games, mobile and free-play social games. It is launching a new interstate progressive jackpot network this year. It also has reached a new agreement with Action Gaming to solidify its 90%-plus share of the US video poker market. FEATURE IGT is more than merely cheap. The company has emerged as a leader in the social gaming space via its 2012 purchase of Double Down Casino—a $500 million deal roundly criticized by Wall Street at the time. The interactive division delivered a 41% increase in revenue in the first quarter to $74.6 million. IGT has secured a new multiyear licensing agreement with Sony Pictures for use of the “Wheel of Fortune” brand across all platforms—slots, online games, mobile and free-play social games.