“We attended G2E in Vegas last week and remain optimistic on tech’s continued resilience,” reported Truist Securities analyst Barry Jonas in an Oct. 19 investor note reflecting on the Global Gaming Expo. He described game makers and related suppliers as the strongest subsection in his coverage universe.
Jonas started his brief survey with Light & Wonder, whose trajectory to $1.4 billion in annual cash flow “has proven a hot-button topic for investors.” Expansions in Georgia (amusement machines), Oregon, and Canada are intended to reap rewards for the company, as is significant spending on research and development.
The analyst projected a solid third quarter for the company. “While shares have outperformed the group and aren’t cheap [$86 per share], we like management’s proactiveness in engineering value,” he wrote, pointing to deleveraging and share buybacks.
Jonas described International Game Technology as being in somewhat of a holding pattern, pending a strategic review of the company’s assets for a possible breakup. “We believe investors are pining for a resolution here and do see some risks to the stock (at least in the near term) if the businesses are not sold,” argued Jonas. “At the same time, these two segments do appear to be outperforming. Ultimately, we think a resolution one way or another likely happens this year.”
Jonas said he was still hearing upbeat feedback on Ainsworth’s games, “as the now-completed company’s strategic review seemingly has the company on a path toward growth.” He wrote that the company’s shares are enjoying a good run, although Ainsworth itself is valued at an “undemanding” 4.5 times cash flow.
“Formidable” competition means that “investors have soured” on Everi Holdings. This was attributed to strong rival product in the mechanical-reel genre and to an “air pocket” in Everi’s own game pipeline. Jonas said his thesis of Everi as a late-2023 growth story “hasn’t panned out” and now the company’s management is bent on a comeback via “an expansive list of content and cabinet offerings.”
Jonas was more inspired by Inspired Entertainment’s G2E presentation: “a standout.” He called an 11 percent drop-off in the stock price “unwarranted,” although he thought the firm might be hindered by its small market capitalization of $300 million. At five times cash flow, Inspired’s valuation, he wrote, “remains too cheap … for a company with material upside.”
Jonas liked Gambling.com Group for its market positioning. He also wrote, “The company should be a beneficiary from a push of second-wave entrants (e.g., ESPN Bet and Fanatics), while they likely had a strong Kansas opening.”
Jonas closed by focusing on macroeconomic concerns. Previously, he had described expecting a 2023 recession as “Waiting for Godot.” Looking back on three quarters of economic activity, he mused, “The macro environment has in fact deteriorated amidst much-too-high inflation, but consumer confidence has generally held up and to some surprise (even this time), the gaming industry has once again proved its resilience.”
The analyst foresaw several economic headwinds for the gaming industry, exhaustion of customers’ savings accounts foremost among them. Another pressing concern was the volatile situation in the Middle East, where a widening armed conflict threatens to put upward pressure on gasoline prices. Also, investors could seek a harbor in other investments safer than gaming stocks. All and all, however, Jonas concluded that gaming represents a coverage sector with areas of value and resilience.
