Italy continues to confuse the investment community’s view of International Game Technology.
The stock price of the gaming equipment giant fell 6.72 percent Wednesday of the New York Stock Exchange on a report out of the United Kingdom’s Guardian newspaper concerning additional spending and borrowing by the Italian government.
The article renewed investor fears that Italy could increase gaming taxes to fix any budget deficits.
Gaming revenues from the country’s lottery and gambling machine business account for roughly half of IGT’s cash flows.
“IGT’s stock has a very high correlation to the Italian stock indexes,” SunTrust Bank gaming analyst Barry Jonas told investors in a research note Wednesday. The analyst called the reaction “overblown, as Italy risks are nothing new to IGT.”
IGT, which merged with Italy-based GTech in a $6.4 billion transaction in 2015, has a large corporate presence in Rome. The gaming equipment supplier also has corporate headquarters and development facilities in Las Vegas and Rhode Island.
Jonas said despite political upheaval in Italy, he didn’t believe the country’s gaming industry would be specifically targeted for higher taxes.
“The Italian (gambling) machine concession are due for renewal in 2022, and we think increasing taxes yet again could backfire and limit interest in the rebid process,” Jonas said.
More importantly, Jonas said, IGT’s two lottery contracts – which account for up to 65 percent of company’s quarterly cash flow from Italy – are not at risk in the near term. The lotto contract expires in 2025 and a scratch and win lottery joint venture with Scientific Games is up in 2028.
“(Both) have contractually set economics that cannot by changed,” Jonas said.
IGT leaders are used to answering questions about Italian gaming matters.
On the company’s first quarter earnings conference call in May, IGT CEO Marco Sala said at the outset Italy lottery results exceeded expectations, with wagering up 5 percent in the quarter.
“Growth in (the) Italy lottery wagering is fueled by product innovation and effective portfolio management,” Sala said. “We are planning exciting new launches for all our main lotto games to sustain this trend.”
IGT Chief Financial Officer Alberto Fornaro told analysts one of the key priorities for IGT is “to strengthen market share in Italy and minimize the impact of regulatory changes there.”
Shares of IGT, traded on the New York Stock Exchange, closed Wednesday at $12.50.
Jonas said there continues to be investor concern about Italy possibly withdrawing from the European Union, which “would have meaningful ramifications for IGT’s Italian business.”
However, Jonas said there didn’t seem to be wide support at this time for Italy leaving the European Union and the Italian lottery and gaming businesses “have consistently proven resilient through economic cycles – likely a function of lower price points and strong Italian affinity for the products.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
