Deutsche Bank invited International Game Technology executives, including CEO Vincent Sadusky and CFO Max Chiara, to make a presentation to Wall Street insiders and came away reassured by the company’s strategy. Lead Deutsche Bank analyst Carlo Santarelli reiterated his “Buy” rating on IGT shares and said they “represent compelling value.”
The IGT leadership team delivered a four-point message, leading off with the belief that they have cost-reduction room, “should demand fall shy of expectations in the event adverse economic conditions emerge,” Santarelli chronicled. Second, appetite for product was described as “robust,” with the only headwind being the potential difficulty of meeting that demand this year due to supply-chain issues.
Third, Sadusky and his associates were upbeat on prospects for the digital segment, particularly lotteries, and — explained Santarelli — “Lottery business is unlikely to be impacted by macroeconomic issues, given limited historical correlation and stable recession period performance historically.” Finally, unspecified “strategic action” was hinted as a way to unlock unrealized value in IGT.
Given the strength of lottery performances last year, the first quarter of 2022 is expected to have a tough act to follow, easing only somewhat during the first half of the year. Five-to-10 percent declines from last year were projected, although instant-ticket sales were expected to remain firm. “We would note,” said Santarelli, “that management does not believe higher gas prices are likely to impact instant-ticket retail sales.”
IGT’s critical Italian lottery segment was expected to face particular pressure, off as much as 15 percent from 2021. Last year, alternate gambling options were curtailed, prompting more Italians to play the lottery instead. That competitive advantage has since been diminished.
Management had threefold confidence in its digital segment, citing the crossover of terrestrial casino games to the Internet, the combination of brick-and-mortar and online jackpots, and the potential for additional lottery openings. Sadusky, Chiara, and Senior Vice President for Investor Relations Jim Hurley were more bullish than Santarelli on igaming expansion. The trio cited the quick agglomeration of market share in Michigan, where internet casinos grossed $123 million in February, as a harbinger for success elsewhere.
IGT bosses freely admitted that their icasino product suffered from lack of customer exposure vis-a-vis digital-first rivals and that a dearth of live-dealer games was also a setback, although Santarelli did not get the sense that IGT was ardent to remedy this via a merger or acquisition, even though “the space is very crowded.” Instead, the company is putting its chips on the lottery segment, expecting the North American market to be a significant growth propellant. Noted Santarelli, “As has been the case, states continue to take their time with lottery expansion, choosing instead to focus on sports betting, which has generated relatively muted tax revenue, relative to lottery, in many instances.”
In its other main bailiwick, slot machines, IGT expects a strong replacement cycle this year. It’s also iprioritizing R&D expenses, as well as premium-level games. While autumn and winter are usually the strongest game-sale periods, Sadusky and company expect to see a healthy spring, as customers are doing their ordering earlier to try and get ahead of the supply-chain curve. Santarelli predicted that 2022 replacement sales would be ahead of 2019’s, but expansion-game sales would be slower, picking up speed in 2023.
