BUSINESS

Union Gaming cuts IGT forecasts

TAGs: international game technology, Union Gaming

International Game Technology PLC (IGT) has had its forecast for the third and fourth quarter cut by brokerage Union Gaming. Despite the retreat, which is expected due to slow earnings growth in the current half, Union Gaming indicates that the slot machine maker is still a “buy.”

Union Gaming cuts IGT forecastsUnion Gaming issued its update last Friday. It says that it had cut the third-quarter forecast for IGT’s EBITDA (earnings before interest, tax, depreciation and amortization) from $436.4 million to $406.8 million. In addition, the fourth-quarter performance is expected to drop from $463.7 million to $454.7 million.

The full-year forecast for the company was previously between $1.7-$1.78 billion. With the updated note, Union Gaming expects the annual EBITDA to be around $1.74 billion, so it still falls in line with the previous forecasts.

John DeCree, an analyst with Union Gaming, explained in the note, “Even with lower estimates and less onerous target multiples, we see more than 20 percent upside in the shares. We agree the sector warranted a rerating after sustaining record-high valuations for several months, but we believe the pendulum swung too far in the other direction. Shares of IGT are currently trading at about 6.5 times our 2018 EBITDA estimate of US$1.74 billion.”

The company’s EBITDA for 2019 was readjusted as well. Whereas it was previously forecast to be $1.78 billion, it now sits at $1.77 billion. One of the major impetuses for the updates was the change in gambling policies in Italy, which has called a halt to all advertising of gambling operations and is set to increase the taxes paid on gaming machines.

There has also been a market correction that influenced the update. According to Union Gaming, “Much of the rerating started in Macau and Las Vegas and trickled down to regional gaming and the suppliers. While the [Las Vegas] Strip is a relatively small component of the overall slot industry, its health (along with Macau) does dictate the performance and investment decisions of some of the largest customers in the industry.”

For the second quarter of the year, IGT reported operating income of approximately $209 million. This was an increase of 8.9% over the same period last year. The company’s EBITDA also improved, rising 4.2% year-on-year to $441.8 million. For the second quarter of 2017, the EBITDA was $423.7 million.

Net income for the second quarter was right at $57 million. This came following a 1.5% decline in net revenue, which was around $1.2 billion.

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