Igt Slot Machine – One day during my senior years in casino management, I visited a small car factory called Sircoma with my team to see a demonstration of the amazing progress on the premises: video poker and blackjack machines. Instead of the window whistling, a TV screen of spinning characters appeared. We placed a trial order for ten machines, five pokers, and five blackjacks, sat on the worst part of the casino floor, and waited.
Within a week, customers had their say. The video slot was even hundreds of dollars more per day than the new Bally standard size steering wheel machines. After the models became popular, they changed their name to International Gaming Technology (NYSE: IGT ) and moved to a larger factory outside of Reno. He also owned a small Reno ranch here called Peppermill. But his future is clearly in gaming technology. What was the future like?
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In 1981, the inevitable public stock issuance increased. The sheer scale of the $7,000,000 machines ordered to the market was astounding. In 1975, the company had $3 million in sales. It was $0.50 a share. By the time it went public, sales had exceeded $61 million. IGT machines have doubled the standard price tag on wheel machines. Back in 2006, it once traded above $46 a share. This win quickly became another bonanza, creating the Megabucks multi-million progressive linked slot machine system in the early 1980s with a revenue sharing component between the casino and the supplier. A lot of real gold has been created.
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This was in the eighties and early nineties. Then, like the founding entrepreneurs, it embarked on a series of acquisition sprees to diversify its product and service lines as a large public company. After a long struggle by activists, the company was acquired by another gaming technology company, which operates the lottery. In 2014, Italian Lottomatica S.p.A.’s Rhode Island-based GTECH bought IGT for $6.4 billion, including $1.7 billion in debt. So, there was the car manufacturer and the EU Lottery Systems Control Unit. Compared to the dominance of the US auto industry, the stock has been difficult to understand.
Through this success, major growth in the company’s growing global footprint across all gaming divisions boosted its stock price to $41.26 in 2007. Since its debut as a penny stock in 1981, investors have jumped in over time because of a flurry of bullish analyst news. But over time it lost its appeal due to debt.
GTECH and IGT completed their merger in the spring of 2015, creating a global end-to-end source for gaming technology solutions. On April 7, 2015, stock legacy name: International Game Technology.
Thus, IGT as we know it today has become a provider of gaming equipment and services operating in more than 100 countries around the world. It has a B2B presence in gaming machines and systems, lottery deals for technology services and operations, as a leading selector and number provider for online gaming and sports betting platforms. IGT currently serves as the network provider for 12 sports betting in the United States.
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Like all players in the gaming arena, IGT stock has been hit hard by the pandemic, largely due to a mass exodus of customers from brick-and-mortar casinos. Lottery business improved and its global reach helped it survive the onslaught of the pandemic.
In our view, the key to a stock’s trading model is that after the mergers, proxy wars, and acquisitions since the 1990s, investors have not understood how well all the pieces of a company fit together. Moreover, much of the growth was financed by debt, creating debt that turned off many analysts.
Additionally, Scientific Games Corp. Peer-to-peer gaming technology record (SGMS) has followed a similar path to expand by combining its lottery ticket base with its slot machine business (Bally) and adding sports betting and network management divisions. If you want to invest in this industry, there were peers like SGMS that seemed like a better story. That company is now trading at £60 a share.
IGT’s 1Q’21 results provide clues to unravel the acquisition story going forward. As the pandemic eased, the business showed an improvement in business flow. It also showed that its global footprint was married in the US and the EU at the same time. What we think is attractive is that paying down $251 million in debt reduced net debt to $7.06 billion from $7.39 billion. This reduced their net leverage to 6.39x, a ways to go, but headed in the right direction. In the earnings call, management said it will continue its cost-savings program through 2021 and 2022, forecasting net savings of $200 million.
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This gives IGT greater flexibility to build its B2B online gaming technology business, which currently operates in the 12 US states that have sports betting laws. There is considerable room for growth here over the next 24 months. Our view is that the CAGR will average ~30% over the next 5 years, given the overall impact of the pandemic by mid- to late-Q3 2022. It starts with over 15,000 games played internationally.
Revenue: up $1.01b from $814m, a 25% improvement on pre-pandemic finals. As the global opening of casinos expands and brings back players with a surge of pent-up interest, IGT’s business venture has a bright outlook. We can see this rally strength from late 3rd quarter to early 4th quarter 2022, promising performance closer to the pre-pandemic 2019 market in terms of brick-and-mortar gaming revenues.
Operating income was $337 million, beating adjusted EBITDA of $447 million. The company expects lottery same-store growth to increase 20% in the 2nd quarter of 2019.
The Forward P/E of 38.31 may be rich compared to some of its peers, but we are entering a phase where we believe a slow but certain recovery will gain steam across all of IGT’s business segments. I don’t think that prospect has made it into the minds of investors here. There are slot machines driving the improvement in the casino capex replacement market, and IGT’s huge and constantly updated game list will drive new sales. Lottery business continues to thrive as more and more move to mobile apps, and sports betting and online casino games will accelerate their volume.
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Beta: (5 years per month) 2.25. This suggests that the volatility that has long been a staple of gaming stocks is materially absent in IGT trading. In our view, it was broad investor sentiment that failed to form a technology company that dominates many areas of gaming.
I believe the 1Q’21 results are certainly the forerunner of a bull run for stocks ahead, with the caveat that a swallow won’t last summer.
Analyst consensus PT: $2521, looking for $0.25c a share in 2021. I think if the current trends continue with $0.38 in our calculations, we can win.
Our PT is $34.50 based on 204m shares outstanding in writing with 40% of 251 institutions. The latest business shows new positions opened for 7m shares compared to 1.4m shares sold.
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First as an early investor in the casino industry, then as an industry consultant to its competitors and now as an analyst, we followed IGT. The company, as I mentioned, meant more to me in its original form, a dynamic, highly customer-oriented automaker. Having had a messy history with acquisitions, mergers, proxy wars and footprints in too many divisions, I’ve been neutral at times.
Although SGMS has different sentiments ranging from $60 to IGT’s $19, both are starting to compete in the main.
However, now that I’m on the cusp of emerging from the pandemic, I’m seeing all of its departments come together in a great design to take advantage of an industry in tears.
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At $19.91 a share, it is near its 52-week high