Global Gaming and PlayDigital units of IGT to Seek Out New Opportunities; IGT Shares Experience a Surge
International Game Technology (NYSE: IGT) witnessed a surge in performance amongst gaming stocks yesterday, following the company's announcement of exploring strategic options for its international gaming and digital divisions.
These options might include selling, merging, or spinning off these businesses, or possibly bolstering investments within them. The company based in London believes evaluating these divisions could unlock value for its shareholders.
Marco Sala, IGT's Executive Chairman, stated, "We believe the inherent value of our market-leading businesses and diversified cash flow profile is not fully recognized in our stock price, and this seems like the perfect time to examine potential opportunities that could boost value for our shareholders."
IGT's investors responded positively to the news, with the stock climbing by 14.36% on considerably higher-than-usual trading volume. The company has enlisted Deutsche Bank, Macquarie Capital, and Mediobanca as financial advisors.
Decoding IGT's Investment Perspective
When it established its iGaming and sports wagering division in September 2021, the possibility of a spin-off was hinted at.
This concept seems to be gaining traction because while IGT is renowned for its popular Wheel of Fortune slot machines, it generates around 70% of its EBITDA from its lottery business, which is one of the world's largest. The company's current structure may not garner sufficient recognition from the investment community for its lucrative lottery operation.
David Bain, analyst at B. Riley, wrote in a client note, "We've maintained that an 'unbundled' IGT should command notably more than its current trading value. Approximately 70% of IGT's EBITDA is generated from the lottery, which sees lottery valuations over 40% higher than IGT. Additionally, given forecasted peer-leading gaming supplier EBITDA growth, investor familiarity with gaming businesses, and established valuation ranges for digital businesses within supplier firms, we believe a bifurcated public gaming/digital pure-play entity, either listed in the U.S. or Australia, should also command a higher valuation versus IGT."
Bain maintains a "buy" rating for the stock with a $43 price target, suggesting a potential upside of approximately 48% from the June 7 close.
Opportunity for Value Creation
Corporate transactions, such as spin-offs or selling off segments, are typically carried out to generate value for shareholders, and this appears to be the case with IGT's strategic review.
From Bain's viewpoint, the stock is undervalued and could be worth up to $50 per share. The analyst noted that while the potential buyer pool, if IGT decides to sell the aforementioned units, might be limited, its global reach could extend beyond the gaming device sector to include iGaming entities.
There are no guarantees that transactions will be reached, and IGT is expected to remain silent on the matter until agreements are close to being finalized.
"No decision has been made concerning any alternative, there is no timeline for the review, and there can be no assurance that the exploration of strategic alternatives will lead to any transaction. IGT will not comment on or provide updates regarding these matters unless and until it deems further disclosure necessary or required," stated the company.
