One gaming analyst has suggested that Scientific Games sell its majority stake in social game developer SciPlay, or should at least use its 83% stake to raise additional capital for the gaming equipment giant.
In a note to investors before the market opened Monday, Jefferies gaming analyst David Katz said that the Las Vegas-based gaming equipment provider now has an opportunity to separate its technology business from traditional gaming.
Katz said last week’s stock transaction, in which an investment group led by Australia-based Caledonia Investments acquired the bulk of billionaire Ronald Perelman’s stake in Scientific Games, could drive “value creation not seen in 20 years.”
Shares of the company, traded on the Nasdaq, closed at $33.95 on Monday, up 99 cents or 3%. During the day, shares hit a 52-week high of $35.03.
Scientific Games shares have risen more than 55% in the week since the transaction, in which Perelman and two associates gave up their seats on the board. Former Aristocrat Leisure CEO Jamie Odell was named Scientific Games’ executive chairman, and Aristocrat ex-CFO Toni Korsanos is now the company’s executive vice chairman.
Katz said the turnover of leadership on the board, “suggests a sea change in operating and stock performance.” Aristocrat’s market capitalization increased from $1.3 billion to approximately $7.5 billion during the two executives’ time with the company.
Odell has been a special advisor to Scientific Games CEO Barry Cottle since May 2019.
“Several changes should occur operationally,” Katz told investors. “Most important is refinement and stabilization of human capital. Some new business unit leaders are identified, but we expect more change throughout all levels. We expect the corporate cost structure to be refined with a key focus on working capital and free cash flow.”
Caledonia has gaming industry experience through its current investments in sports betting and online gaming giant Flutter Entertainment and DraftKings. Caledonia was once the largest institutional investor in Aristocrat, an Australian slot machine giant.
Katz suggested selling down SciPlay, which saw revenues jump more than 40% in the second quarter, could boost his current $50 per share price target on Scientific Games by 20% to 25%.
“Despite the leap shares on the news, we expect a review of the technology businesses and deconsolidation is likely,” Katz said.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
